It’s happened again. It’s a little over three weeks until Tax Day, and you’re nowhere near ready. Your files are still a mess, receipts and documents are scattered everywhere, and 1099s or W-2s need to be rounded up. What’s more, life keeps getting in the way. You can’t find time to pull everything together for your accountant.
Maybe you won’t worry about hitting the April 15 filing deadline this year. You’ll just be a little late. How bad can that be?
Answer? It could be very bad.
Solution: File an extension.
The IRS expects individual taxpayers to do two things every year:
Of course, things come up, and sometimes taxpayers aren’t ready when April 15 rolls around. In that case, you can file an extension, which gives you or your accountant extra time to get your tax return filed. But there’s a catch. The extension is only on filing the return. It doesn’t buy you additional time to pay taxes you owe. The IRS still expects you to send in your money on April 15.
How can you do that if you haven’t done your taxes yet? It’s a valid question. Most accountants can help you estimate the amount you’ll owe so you can at least send the IRS something. Sending something is better than sending nothing.
If you owe the IRS money and don’t file your return by April 15, you’ll pay a penalty. And that penalty adds up quickly. For every month you don’t file your taxes, you pay an additional 5% of what you owe, up to 25%.
So, for example, if you owe $1,000 and don’t file your tax return until July 20, you’ll owe an extra $400 in penalties. And that’s if you went ahead and sent the IRS some of what you owed on April 15. To compound the problem, you’ll also owe interest on any unpaid taxes. So if you didn’t file because you couldn’t afford to pay your taxes…you’ve just made the problem a whole lot bigger.
The IRS is more concerned about getting money than about receiving tax returns. But taxpayers do have to do both. Filing an extension gives you more time to get your tax documents together so your accountant can file your return. But someone has to file the extension to get that extra time. Remember, the extension only applies to filing your taxes, not paying them. The IRS expects to be paid on time, even if you file an extension.
Tax extensions must be filed by April 15, so if you know you won’t be ready to file your return by then, make sure you file an extension on or before that date.
If you’re expecting a refund this year, you’re not off the hook. You still need to file an extension by April 15 if you can’t get your tax return filed by then. If the IRS owes you money, they’ll simply sit on it until you file your return.
If you need extra time to gather your tax documents this year, give Adams Accounting Solutions a call so they can file an extension for you by April 15. That’ll give you a little breathing room while you gather your paperwork. And if you have questions about anything related to tax preparation, give us a call. We’re more than happy to help!
Last April, we talked about some of the challenges the IRS was having processing tax returns. Many of those challenges were due to the coronavirus pandemic, but federal stimulus measures also contributed to the agency’s workload. The IRS — like so many businesses — had to shut down for a while, putting an already-behind system under even more pressure as truckloads of tax returns sat outside closed offices for months.
It seems not much has changed. If you’re expecting a tax refund this year, you might want to get a chair. It could be a long wait.
According to The Washington Post, nearly 24 million Americans are still waiting on last year’s tax returns to be processed. Some refunds take ten months or more to arrive in taxpayers’ mailboxes or bank accounts. Those numbers are substantially larger than those initially reported when we wrote last year’s article on this topic. And this year is shaping up to be worse.
The IRS is trying to get a handle on the situation by hiring and training new employees. But that process takes time. And while new hires are furiously taking notes and working slowly through tax returns, more arrive for processing every day.
Lawmakers on Capitol Hill are aware of the issue, but many are stymied when it comes to solutions. And, of course, some don’t see the need for extra funding to help solve such an issue.
The size of the current backlog varies depending on who’s answering the question. According to taxpayer advocates, as of January 28, the backlog of individual and corporate tax returns that require “manual processing” hovers at around 23.7 million. An IRS spokesperson says that 6 million of those are paper returns for individual taxpayers. To provide some perspective, before the pandemic, the IRS typically carried around one million returns from one year into the next.
Most of the tax returns in the IRS backlog are paper returns that require some amount of manual processing. Electronically filed tax returns zip through the system quickly unless they’re flagged for some reason. This means the best thing you can do for yourself is to file your taxes on time electronically. And make sure they’re done correctly, so they don’t get flagged for any reason.
At Adams Accounting Solutions, we’re up to our eyeballs in tax returns right now. It’s to be expected at this time of year. We don’t have a backlog like the IRS does, but it still goes without saying that the sooner we get tax returns processed, the better for everyone.
If you need help preparing and filing your taxes this year, whether individual, corporate or both, give Adams Accounting Solutions a call. We’ll do everything we can to get your tax return electronically filed correctly and on time. The rest is up to the IRS!
It’s not uncommon for a taxpayer’s interaction with their accountant to be limited to dropping off tax documents and picking up a completed tax return. However, many accountants provide a wide range of services to their clients, especially if they serve the small business market. Entrepreneurs and small business owners can often benefit from these additional services — if they know about them.
Here are just a few of the ways accountants help small business owners plan for future success.
Tax advice: Most accountants, especially CPAs, offer tax planning advice in addition to tax preparation services. Tax-related issues pop up in many forms. Having a trusted accountant on your side who can help answer questions and offer advice on how to handle them is invaluable from a business perspective.
Accounting and record-keeping: Accountants don’t like messy piles of paper any more than the rest of us. That’s why many accountants offer record-keeping assistance. It helps clients stay organized throughout the year and simplifies their job come tax time!
A good accounting system helps business owners track revenue and expenses as the year progresses, providing the ability to spot trends and make adjustments as needed. Many small business owners use QuickBooks to help run the company. But QuickBooks is easier to get up and running with a QuickBooks-certified accountant’s help.
Auditing services. Accountants also provide auditing services. There are several scenarios in which a business may need auditing services. Some banks require an audit of the books when taking out a loan. Perhaps you’re buying a new business or being bought by another company. Audits will be needed on both sides before the deal can move forward. And, of course, sometimes the IRS conducts an audit of tax returns. These situations are easier to get through when you have an experienced accountant on your team.
Business advisory services. Since accountants are privy to the details of your finances — often personal as well as professional — it makes sense to request their help in pulling everything together into a single financial plan. Accountants often offer advice on the impacts of investments, insurance, and real estate deals and can point you to experts when you need more in-depth advice. A good accountant is invested in your success and is willing to help in any way they can.
Adams Accounting Solutions provides all these services and more to small business owners and individual taxpayers. We have experience in many types of small businesses, from medical and dental practices to farms to retail operations and more.
Adams Accounting is also QuickBooks-certified. We’ll help you set QuickBooks up for your business and show you how to run the reports that provide regular visibility into the state of your business.
Give us a call today with questions or to learn more about the many accounting services offered at Adams Accounting Solutions. We look forward to becoming part of your team!
As hard as it is to believe, tax day is a little over two months away. That may seem like plenty of time to pull documents together and get organized so you can file your tax return on time. But as any busy person knows, time has a way of flying by faster than anticipated. And when you’re trying to run a business, mission-critical tasks have a way of getting lost in the daily details.
Adams Accounting Solutions wants to help you stay on track this year, so when tax day rolls around, you’re ready. Whether you’re filing an individual tax return or filing as some form of small business, we’re here to help. We can answer questions and advise you on the information you’ll need to prepare your taxes and have them ready to file on April 15.
Here are a few things you can do ahead of time to get ready for the big day. The sooner you get started, the less stress you’ll experience. And that helps keep your business — and your life — running more smoothly.
A good filing system is the key to making this task easier. If you have a good filing system in place, you probably know where most of your tax documents are. If not, this is the time to start looking for them. You might want to set that filing system up for next year while you’re at it!
Here are a few examples of the types of documents most people need to file their tax returns.
The tax year ended on December 31, but there’s still time to make deposits into tax-advantaged accounts, such as an IRA or a health savings account (HSA). Check with a certified accountant for more information or to determine the amount you’re eligible to contribute to these types of accounts.
One of the best ways to prepare for tax day is to visit with a tax professional. While many individual taxpayers choose the do-it-yourself method of tax preparation, this method often leads to missed deductions or incorrect tax returns. Either of these errors can lead to you paying more than you need to.
The pros at Adams Accounting Solutions are experts in individual and small business tax preparation. Not only can we help you get prepared for tax day, but we can also advise you on how to make the most of the deductions you qualify for.
If you need help preparing your taxes this year, give us a call at 913-888-9100. We’ll answer all your questions and work with you to make sure that when tax day arrives, you’re armed and ready. Give us a call today!
There are very few things that are to your advantage to put off until later. It’s true that once in a while, you can procrastinate on a project long enough that the project is no longer necessary. But that’s usually the exception, not the rule.
Estimating your 2022 income so that you can make estimated tax payments falls into the category of “there’s no time like the present.” Planning for estimated tax payments gets you in the mindset of paying attention to your financial condition. It helps keep you on track. And it keeps you from paying penalties come tax time next year.
You don’t have to worry about estimated tax payments if you’re an employee. Your employer withholds money from each paycheck and sends it to the IRS on your behalf. You then “reconcile” with the IRS at tax time.
However, if you’re a self-employed small business owner or contractor, it’s a different story. You’re responsible for paying taxes as you go. There’s no employer to do it for you. Most taxpayers in this situation make estimated tax payments each quarter. But that can be a challenge if you don’t know how much you’re going to make.
The best way to estimate your income for tax purposes is to start with what you made last year. Then figure in any variables that might impact the business this year. Are you expecting to land a big project? Are you staffing up? What conditions might affect your industry this year? Most business people can get a good handle on these variables and others. Once you have an idea of how much income you’ll earn, you can use the IRS’s worksheet to help you figure out how much tax to pay.
A good thing to remember is that this process isn’t all or nothing. You can do it each quarter and adjust your tax payments as you go. Next year at tax time, you’ll true everything up with the IRS just like everyone else. If you’ve guessed correctly, you should end up owing little to nothing or possibly even receive a refund.
If you’re new to all this, it might be wise to call an accountant for help. Adams Accounting Solutions can help with all aspects of tax preparation for small businesses and the self-employed. We’ll help you calculate your estimated income and quarterly tax payments so there are no surprises at tax time next year.
Give us a call to schedule an appointment. There’s no time like the present to start planning for the future!
Did you steal anything last year? Embezzle money from your employer or clients? Maybe you sold drugs on the street or worked as a prostitute for part of the year. If so, make sure you report the money you made from your illicit endeavors as income on your taxes this year. You don’t want to get in trouble with the IRS.
No. As crazy as it sounds, the IRS wants to remind everyone that any income gained from illegal activities is taxable and must be reported as income on their tax return. This includes income “earned” from drug deals, thievery, prostitution, embezzlement, bribes, and other unspecified illegal activities.
The IRS wants its share of all your income. To that end, it’s reminding taxpayers in IRS Publication 17 to include “income from illegal activities, such as money from dealing illegal drugs” on their tax return. It goes on to explain that the IRS also treats stolen property as income if it’s not returned to its rightful owner by the end of the year. In that case, the thief should report the item’s fair market value on their tax return. All income from illegal activities should be reported on Form 1040, line 21, or Schedule C if you’re self-employed, according to an IRS spokesperson.
We’re assuming your question pertains to reporting illegal income and not performing the illegal act itself. Believe it or not, there are criminals who report stolen or ill-gotten gains on their taxes. Most individuals who ‘fess up in this way are already in hot water. They’ve either been arrested or are about to be. In that case, it’s to their benefit to report illegal income to avoid getting charged twice — once for the crime and again for tax evasion. After all, tax evasion is what brought Al Capone up short in the end…
Another good question. Tax returns are confidential, and the IRS can’t rat anyone out. It’s not supposed to proactively contact the authorities unless suspected terrorism is involved. Law enforcement officials must get a court order to access a specified taxpayer’s records. Since the IRS doesn’t require much in the way of documentation, reporting illegal income is probably safer than it sounds. However, if you get audited, you should be ready for some tough questions.
Of course, we don’t condone illegal activity of any kind. But if you need tax preparation advice or assistance, we’re here for you. Adams Accounting Solutions specializes in small business and individual tax preparation. We’ll help you get your taxes prepared correctly and filed on time. Call or stop by today!
Good bookkeeping and accounting habits make all the difference.
The end of the year is here, and many small business owners are anxiously looking toward the New Year. If you’re an entrepreneur or small business owner, you’re probably doing the same. You may be asking yourself these questions:
Creating a solid foundation on which to build your business is critical for long-term success. It’s not as flashy or fun as meeting people and making sales. Smart business owners understand the importance of having back-office affairs in order, but it can be a challenge to keep records organized and keep the business moving at the same time.
If you struggle with keeping the back-end of the business organized, look at these tips from Adams Accounting Solutions. They’ll get you started on the right foot and make tax time and year-end reporting next year much less stressful.
A sound bookkeeping system is key to success for any business. You need a place to quickly and easily record expenses and income. Many entrepreneurs start this on a spreadsheet. As the business grows, however, the accounting system needs to grow as well, and many businesses outgrow spreadsheets within the first few years.
There are many free and low-cost bookkeeping systems on the market today, and most of them are quite user-friendly. QuickBooks Online is a popular system robust enough to handle a growing company’s needs but still easy to use. Another option is hiring a bookkeeper to organize and manage everything for you. Invest in a good system now so it can be implemented on January 1.
Keep personal and business records, income, and expenses separate. This creates a cleaner paper trail at tax time and makes year-end reconciliation and reporting easier. You need to know how much revenue the business brings in and how much money is going out. It’s tough to do that if everything is jumbled together.
Hopefully, you balance your checkbook every month, so you know how much money you have in your account. You need to do the same thing with business finances. Reconcile income and expenses regularly, ensuring all receipts are recorded correctly, mileage is tracked consistently, and cash flow is being monitored. This helps prevent unpleasant surprises down the road.
We know it’s hard to stay organized and keep up with paperwork while running a business. Adams Accounting Solutions specializes in small business financial planning and tax preparation services. We’re licensed CPAs and are also QuickBooks-certified. We love working with clients to create solutions that are a perfect fit for their business needs.
Give us a call at 913-888-9100 or stop by our office in Overland Park. We’ll help you put a system in place that allows you to focus on driving the business next year instead of worrying about the paperwork!
Self-employed taxpayers may have noticed this year that they were sent a 1099-NEC instead of the usual 1099-MISC received in the past. This change confused both employers and the employed. Here’s a little more information about what’s going on, so you’re prepared for the next go-round.
In a nutshell, the IRS reinstated Form 1099-NEC to simplify reporting for employers who use self-employed individuals or who make payments to third parties for other business purposes.
Form 1099-NEC (Nonemployed Compensation) was first rolled out in the early 1980s. It was used for taxpayers to declare income earned through self-employment during the year. However, in 1983 the IRS revised Form 1099-MISC, requiring businesses to report the amount of money paid to contractors, consultants, and other self-employed people. This revision did away with the need for Form 1099-NEC, and the form went by the wayside.
The revision to Form 1099-MISC also created a conundrum for employers as they now had two deadlines to manage. The deadline for sending Form 1099-MISC to self-employed people they purchased from during the year was January 31 of the following year. The deadline for sending it to everyone else was February 28.
To clean this situation up, the IRS brought back Form 1099-NEC in 2020, making the due date January 31. This change should help businesses keep the two forms straight. This move also aligns the delivery of Form 1099-NEC with the due date for sending out W2s.
Here’s what all this means for you.
If you’re self-employed, you should expect to receive Form 1099-NEC from every company that has paid you $600 or more during the year. You’ll receive this form in lieu of Form 1099-MISC. If a company sends the wrong form, contact them to get the correct one. Self-employed individuals should report all business revenues earned from clients, whether they receive Form 1099-NEC from them or not.
If you’re an employer, you’ll need to send Form 1099-NEC to all independent contractors, consultants, or other self-employed individuals whom you’ve paid $600 or more during the year. These need to be sent by January 31, 2022, or you’ll risk incurring penalties. Form 1099-MISC should continue to be used for income that’s not subject to self-employment taxes.
If your business uses independent contractors or freelancers, you’ll need to send out Form 1099-NECs before January 31, 2022. Adams Accounting Solutions can help with that. We specialize in small business tax preparation and will help you stay on task and on deadline.
Give us a call at 913-888-9100 if you still have questions about 1099s. We’re happy to help clear up the confusion!
One of the goals for most income-earners is to make as much money as possible during their working years so they can retire comfortably. Come tax time, many find a significant portion of their income eaten up by taxes. There are a few actions you can take to alleviate some of this pain next April.
If you work for a company that sponsors a retirement plan — such as a 401(k) or SEP IRA — the best thing you can do is put as much into these accounts as allowed by the company and the IRS. This is especially true if your company matches all or a portion of your contributions. The employee match portion is essentially free money. It doesn’t make sense to turn that down.
Company-sponsored 401(k) accounts don’t just help you save for retirement. They also help reduce your taxable income. So come next April, your adjusted gross income will be less.
SEP IRAs are designed to encourage retirement savings for sole proprietors, partnerships, and corporations — entities that may not otherwise set up employer-sponsored retirement plans. The allowable contribution is significantly higher than a traditional IRA, making this a good choice for those who fall within the guidelines. SEP IRAs are treated like traditional IRAs for tax purposes.
Adams Accounting Solutions advises clients to maximize contributions to company-sponsored retirement accounts before investing anywhere else.
There are other retirement accounts that wage earners can benefit from if they choose.
Traditional IRA — A Traditional IRA allows taxpayers to invest pre-tax dollars that grow tax-deferred until they’re withdrawn during retirement. At that point, the money is taxed at the individual’s current tax rate. There are no capital gains or taxes on dividends assessed. A Traditional IRA is different from a Roth IRA because the Traditional IRA is funded with pre-tax dollars.
Roth IRA — A Roth IRA is a great place to squirrel away a little more income after maxing out your contribution in your employer-sponsored retirement account. Roth IRAs are funded with after-tax income, so when it’s withdrawn during retirement, it’s tax-free. Many people don’t realize they can have a Roth IRA in addition to a 401(k) or other retirement accounts. It’s wise to maximize contributions to both if you’re able to do so.
As with any investment, the sooner you do it, the longer your money has to grow, assuming market conditions are favorable. Adams Accounting Solutions recommends making 2021 contributions to your retirement accounts by December 15. While the actual deadline is April 15, 2022, contributing by December 15 keeps records clean and eliminates the potential that accountants and account owners will have to guess at which year the contribution was for.
There are other avenues available when saving for retirement and potentially reducing tax liability. Call Adams Accounting Solutions today and schedule a consultation. We’ll help you determine the best investment options for your situation.
In our July article, we talked about the basics of the advanced child tax credit program and how it works. Since we’re well into this process with October payments going out last week, we thought it was time for a quick update on what’s going on with these payments and how they may impact your tax situation.
We’ll put this up-front: While getting money deposited automatically into your checking account may seem like a good thing, your best bet may be to opt out of these payments. They could cause trouble down the road.
First, a quick recap of what the advanced child tax credit is. The advanced child tax credit program is designed to put more money in the pockets of families for immediate use on things like groceries, daycare, and clothing. Families who would ordinarily claim the child tax credit on their income tax returns next year are receiving half this credit in installments that started in July and run through December of this year. The remainder of the credit will be returned when they file their 2021 tax return next spring.
The IRS determines how much each family receives based on the number and ages of their children on December 31, 2021. For each qualifying child 5 or younger, up to $1,800 (half the total child tax credit) will be paid this year in six payments. For each child between 6 and 17, the family receives up to $1,500 (half the total credit) over the same period. Dependents 18 and older may also qualify but with stipulations.
While this seems straightforward, there are also income limits on how much each family receives. Higher-income earners qualify for less. This means a job change could impact the amount you’re eligible for. Refer to the IRS website for more information or drop in and see us at Adams Accounting Solutions.
Next year when you file your taxes, you’ll need to know how much you received in advance payments and compare that with the amount you’re eligible to claim. If you’ve received more than you should have — the IRS is basing payments on 2019 and 2020 tax returns — you’ll have to pay back the excess. In some cases, both parents have received advanced child tax credit payments for an eligible dependent, even though only one parent is allowed to take the deduction.
To avoid situations like this, tax experts recommend keeping your records updated on the IRS Child Tax Credit Update Portal. This is also where you can unenroll if you don’t meet the income or eligibility criteria for receiving these payments or if you’d rather do it the old-fashioned way, waiting to claim the child tax credit until you file your taxes next year.
There are many other issues with this program. Some taxpayers who should be receiving these checks have not gotten them yet; others have received checks for dependents who are long grown and out of the house. Still others are getting the wrong amount.
If you have questions about the advanced child tax credit program, give us a call. It’s our business to stay on top of issues like this. Adams Accounting Solutions can help you work through the confusion to obtain the best results possible at tax time. Call today for an appointment!
Richard Adams is a graduate of Benedictine College in Atchison, Kansas, with dual majors in Accounting and Business Administration. He is also a graduate of Wentworth Military Academy in Lexington, Missouri.