What to Do If You Missed the Tax Deadline

May 04, 2017

April what? I’ve written before about why not to procrastinate filing your taxes, but sometimes life just gets in the way. We recently received a question about what to do if you missed the tax filing deadline. Here are some steps to take:

Don’t panic. Assuming you’re not found guilty of egregious tax fraud, you’re not going to jail. In fact, if you don’t owe anything, you won’t even have a penalty. I once filed late one year and my only punishment was having my refund delayed.

Decide whether to do your taxes yourself or use a professional tax preparer. Here are some things to consider. Keep in mind that if your income is below $64k, you may now qualify to use name-brand tax software for free. (If your income is above $64k, you can still use the IRS’s fillable forms for free, but they don’t offer any real guidance so I wouldn’t recommend this unless your taxes are really simple and/or you really know a lot about tax preparation, in which case you probably wouldn’t be reading this.) The good news is that if you decide to hire a tax preparer, you may have an easier time finding one now that the busy tax season is over.

Get your taxes done ASAP. If you do owe taxes, you’ll want to get the payment made as soon as possible to minimize interest and penalties. (Here are some things you can do if you can’t afford the payment.) If you’re owed a refund, my guess is that you can think of better uses of the money than continuing to loan it to federal government tax-free (although they could really use the money right now). Either way, you’ll be relieved to get it off your mind.

Prepare for next time. Check out these tips to prepare for the next tax season. If you think you’ll need extra time, you can file for an automatic extension until October. However, you’ll still owe interest and penalties for any payments made past the filing deadline. To be on the safe side, you may want to adjust your W-4 to have more money withheld from your paychecks so that you don’t owe next year.

Don’t worry. You’re not the first person in America to miss the filing deadline. That being said, next time the consequences could be worse so try not to make the same mistake again.

How to Find a Good Tax Preparer

April 26, 2017

As a CPA who used to actually prepare taxes for other people, many are often surprised to learn that I no longer even prepare my own income taxes. The first year my husband and I were married, I spent the better part of a spring Saturday inputting all of our stuff into online software and resolved after that to outsource that task to a real pro going forward. When I was single and had just a W-2, student loan interest and a deposit to my IRA, my taxes were simple and it took me less than an hour to get them filed. But our taxes are much more extensive these days.

My husband is an independent contractor so he’s considered self-employed. We make several trips to Goodwill each year to drop stuff off, which requires an entry for each and every trip, and I have income from my moonlight gig as a fitness instructor and writing the “Weekly Savings Tip” for Feed the Pig. Not to mention that my husband has a brokerage account where he likes to play the market a little bit (with money we can afford to lose), which some years means a dozen or more entries for capital gains and losses. If time is money, then the money we pay our accountant to prepare and file our taxes is money well spent. If you’re in the same boat or find yourself with a new tax complexity that isn’t as easily handled by the tax software available to “common folk,” here are some best practices for finding the best person to help you:

Decide if you want a tax preparer, an EA or a CPA.

What’s the difference? I bet you didn’t know that pretty much anyone can call themselves a tax preparer, although the IRS has started to regulate that by requiring people who accept payment for preparing taxes to have a PTIN (paid preparer tax identification number).

An EA (enrolled agent) is someone who has passed the IRS’s test for tax preparation and is allowed to represent taxpayers in front of the IRS. Most EAs are going to be pretty well-versed in the more common tax issues like what you can deduct, self-employment income and what credits you might qualify for.

A CPA (certified public accountant) is someone who has a degree, studied accounting, and passed the Uniform CPA exam, which is no joke. Just because someone is a CPA doesn’t mean they do taxes, but if a tax person is a CPA, you can bet that they have a decent depth of knowledge. If they are a CPA/PFS (like me!) then they have also passed an additional test demonstrating deep knowledge of personal finance issues like retirement planning, budgeting and investing.

If your situation is pretty simple, but you just don’t want to spend the time on preparation, then you may be satisfied with a tax preparer through one of the large chains like H&R Block or Jackson Hewitt. Just know that since these companies guarantee accuracy and your lowest taxable income, they’re likely to go a little overboard in requiring you to document things that ultimately may not matter, like casualty losses and medical expenses (which must exceed 10% of your adjusted gross income to count).

If you have a little more complexity like self-employment income, income in multiple states or rental properties, then you may want to look at either an EA or a CPA. The biggest difference here is probably going to be cost, although not always.

How to find an EA or CPA to help with your taxes.

EA: National Association of Enrolled Agents

CPA: Look to your state’s society of CPAs by searching “Illinois (or whatever state you live in) CPA society.” That’s the best way to find a database of those in your area since CPAs are registered through their state rather than nationally.

CPA/PFS: www.findacpa-pfs.com

When performing your search, make sure you limit results to specialties that apply to you. If the database has a category for “individuals,” always check that and then also look for other complexities you may have such as multi-state or small business. Your search is likely to turn up multiple results, so you’ll want to filter out anyone who works for a large firm because they’re less likely to actually work with “everyday” people and instead specialize in very wealthy individuals.

I tend to look for people who work in a small office or even on their own. They’re more likely to want to work with everyday people at an affordable rate. After that, it may come down to convenience. Whose office is easiest for you to get to in order to drop information off, sign documents or stop by mid-year for a tax planning session?

This brings me to another criteria. Do you want someone to just prepare and file your taxes or do you want someone to help you save money on taxes going forward? Our accountant is a straight-up tax preparer, at least for us. If you’re looking for more guidance on saving money going forward, then you’ll want to ask a potential preparer if they do tax planning and you may want to look for the CPA/PFS credential.

The sad fact is that there aren’t a lot of CPAs out there that actually want to do income taxes for regular families who just have jobs, kids, a house and a few charitable donations. The easiest way to find one that does is to just pick up the phone and start asking, “Do you accept individual tax clients and what is your minimum fee?” If the minimum is more than $500, I’d say move on.

Kelley Long is a resident financial planner with Financial Finesse, the leading provider of unbiased workplace financial wellness programs in the US. For more posts by Kelley or to sign up to have her weekly post delivered to your inbox each Wednesday, please visit the main blog page and sign up today.

How Getting Divorced Affects Your Taxes

April 12, 2017

One of the biggest questions people often ask as they’re going through a divorce is how it will affect their taxes. It’s a question worth considering, especially if the process of getting divorced spans multiple tax years where you’ll still be technically married but living apart. The IRS only cares what your marital status is on December 31st. For example, when I was going through a divorce, we had filed by year-end but the divorce was not finalized until late January. That meant that by the time we had to file our taxes for the prior year, we were no longer married, but in the eyes of the IRS, we were for that tax year.

If you’re separated from your spouse but haven’t filed for divorce yet, you may qualify to file as “head of household” if you and your spouse lived apart the last six months of the year and you paid more than half the cost of keeping up a home for your child who lives with you more than six months. This generally means you’ll pay less taxes than if you were to use “married filing separately.” This article goes more into the details of filing jointly versus filing separately. Just know that if you file jointly and then your estranged spouse bails on the tax bill, you’re fully on the hook. In my case, we filed jointly because we both ended up paying less taxes and I personally wasn’t concerned that my ex was committing tax fraud.

The decision could also depend on the rules of your state and how your expenses were paid. If you live in a community property state (AZ, CA, ID, LA, NV, NM, TX, MI or AK) and decide to file separately, you generally would each claim one-half of your expenses on your return. If you do not live in a community property state then each spouse only takes a deduction for expenses he or she actually paid. In other words, if you are making the mortgage payment without help from your spouse, you’ll want to figure out which status realizes the full value of the interest you paid.

Once your divorce is finalized, you’ll want to start from scratch in making sure you’re having enough withheld from your paycheck. Don’t have too much withheld either though. You can use the IRS Withholding Calculator to help figure out what changes you may need to make.

Finally, make sure you understand how maintenance (often called alimony) and child support work for tax purposes. Basically, you can deduct alimony paid but not child support. Likewise, if you’re receiving alimony, you have to claim it as income but not if you’re receiving child support. Who gets to claim the kids as dependents on their tax return is something that should be worked out in your divorce agreement and if you’re receiving a significant amount of alimony, you may need to file estimated taxes to avoid any under-payment penalty. For help with that, it’s best to consult a tax professional for customized guidance.

3 Strategies To Help With Your Tax Fears

March 15, 2017

I’m going to go out on a limb and say that tax time is pretty much everyone’s least favorite time of year. Even for me, a CPA and former tax preparer – I dread the process of digging up all our information and organizing it in order to complete our taxes and I especially dread the verdict of how much we’ll owe. It’s no surprise that nearly 1/3^rd of all tax returns were filed in the last two weeks of the 2015 tax deadline. Whether it’s due to fear, procrastination or waiting on that last bit of information, tax time is stressful. My colleague Teig Stanley offers the top 3 fears that we help people address and a strategy to overcome each of them:

Fear #1: It’s Confusing/Overwhelming

Your strategy: Overcome this barrier by writing a short, step-by-step plan to file. Set a date and time well in advance of the deadline (April 18^th this year) when you will start your tax filing and decide if you are going to use a tax preparer or do your taxes yourself.

Then, organize your documents. Use a tax preparation checklist or ask your tax preparer for one and start making an inventory of the documents you’ve saved. If you’re like most, almost all of your documents are in paper form, so make these files for them:

Income
Charitable contributions
Taxes paid
Receipts
Miscellaneous

Fear #2: I Might Not Get a Refund

Your strategy: If you’re afraid you’ll owe, the sooner you know the better. Even if you file your taxes in February, that balance isn’t due until April 18^thso go ahead and file as early as possible and use the extra time to make a plan to pay what you owe. If it’s more than you can afford, you can contact the IRS to arrange a payment plan or borrow from another source. Just be sure to compare interest rates to get the lowest possible cost.

If you’ll be receiving a refund – great! Get those tax returns in quickly to receive the money sooner. Asking for direct deposit makes it even faster. If that refund is large, consider filing a new W-4 form with your payroll department to increase your exemptions and take more money home in your paycheck throughout the year.

Fear #3: What If I Get Audited

Your strategy: Statistically, less than 1% of tax returns for those reporting under $200,000 in income (and more than $0) are chosen for an audit by the IRS each year. If you are concerned about an audit, work with a professional tax preparer who will agree in writing to provide audit support if one is requested.

The bottom line is that while tax time is no fun for anyone, it’s not something you should be fearing. If you haven’t already, get down to it and get it done. If you’re going it alone in preparing your own taxes and need help, contact your tax software provider or search for free tax prep help through local community organizations and national non-profits. You may even qualify for free preparation if you have a moderate to low income.

5 Reasons Not to Put Off Your Taxes

February 04, 2016

By now, you should have received the documents you need to file your taxes. I know it’s easy to procrastinate though. After all, I’ve had my share of late night runs to the post office on April 15^th.(You actually have until April 18^th to file your taxes this year because the IRS will be shut down on April 15^th for “Emancipation Day.”) But there are some very good reasons not to put off filing your taxes: Continue reading “5 Reasons Not to Put Off Your Taxes”

How My Tax Preparation Software Let Me Down

July 22, 2015

For the last seven years, I have used tax preparation software to help me file my federal and state income tax returns, and I’ve never had a problem…until now. You see, each year I’ve been entitled to tax refunds, and each year when the tax preparation software asks me if I want to have my tax refund directly deposited into my bank account, I would say yes, but this year was different. This year, instead of getting a tax refund from the state, I ended up owing the state more money, so instead of asking me if I wanted my tax refund directly deposited into my bank account the software asked me if I wanted to have my tax payment debited from my account. Continue reading “How My Tax Preparation Software Let Me Down”

Stop Going Through the Motions of Filing a Tax Return

March 30, 2015

Spring is a busy time of year here at Financial Finesse. While we are always busy providing financial guidance with passion and objectivity, the tax season and the April 15^th deadline provide an extra sense of urgency for many callers reaching out to us on the Financial Helpline. Many of the income tax specific calls we receive can be characterized as information seeking and tend to be reactive discussions. When you think about the tax filing burdens created by a complicated tax code, the IRS can strike fear into hard working taxpayers to try and get things right. Continue reading “Stop Going Through the Motions of Filing a Tax Return”

When To Hire a Tax Preparer

February 11, 2015

It’s February, and that usually means that you are ready for winter to be over, you are thinking about what to get that special someone for Valentine’s Day, and you can’t decide whether to do your own taxes or to let someone do your taxes for you. For years, taxpayers have been baffled by the federal income tax system and for good reason. The number of pages in the Wolters Kluher CCH Standard Tax Reporter reached 73,954 in 2013! However, there’s probably only a handful of those pages that actually apply to the average taxpayer, while the rest of those pages are technical jargon, legalese, and other stuff that’s most irrelevant to you and me. Continue reading “When To Hire a Tax Preparer”

5 Tips to Make Tax Time Less Taxing

January 12, 2015

If Christmas is the most wonderful time of year, why does it always have to be followed by its stressy and messy cousin “Tax Time.” Remember that New Year’s resolution to get your financial life in order? Well, it’s not too soon to start organizing the files, papers and “stuff” needed to do your taxes. Continue reading “5 Tips to Make Tax Time Less Taxing”

Simplified Rules for Calculating the Home Office Deduction

March 26, 2014

For years, the IRS has maintained a somewhat complicated method for calculating the amount of deductible expenses small business owners and work-from-home employees could claim under the Job Expenses section of Schedule A. Starting with the 2013 tax return, the IRS now offers a simplified option for calculating this deduction. This simplified option greatly reduces the complexity of the regular method—which requires completing a lengthy tax form (Form 8829) and making complex calculations of allocated expenses, depreciation, and carryovers of unused deductions—and is expected to save small businesses 1.6 million hours a year in paperwork and recordkeeping. Instead, taxpayers claiming the simplified option need only complete a short worksheet. Keep in mind that the simplified option does not change the criteria for who may claim a home office deduction—it just simplifies the calculation and recordkeeping requirements. Continue reading “Simplified Rules for Calculating the Home Office Deduction”

Do You Qualify for Free File?

January 21, 2014

It’s that time of year again. The IRS will begin accepting electronically filed federal returns on January 31^st, kicking off the 2013 tax filing season. But instead of paying hundreds of dollars to have your taxes professionally prepared, you may be eligible for free tax preparation and e-filing through the IRS Free File program, a public-private partnership between the IRS and commercial tax software companies. Continue reading “Do You Qualify for Free File?”

Reflections After Tax Day

April 20, 2012

We just got past April 15^th, otherwise known as “Tax Day” to many Americans. Actually, it was the 17^th this year, but who’s going to let a mere 48 hours change our perception of April 15^th? In the days leading up to April 17^th, it was impossible for me to go more than a few minutes without being asked a question about taxes, asking someone a question about taxes or seeing a tax piece on the news or online. I felt like I was seeing tax information even while I was asleep. Continue reading “Reflections After Tax Day”

5 Easy-to-Miss Tax Filing Mistakes

February 20, 2012

Whoops! In preparing for this blog, I realized that I made one of the easy-to-miss tax filing mistakes I was going to alert you to! I moved last year and was supposed to inform the IRS by filing form 8822. If they sent paperwork during the year, I can’t just say, “I never got it – I moved!” That is a bit like saying, “My dog ate my homework” and will just not fly with the IRS. I sure hope any statements were forwarded by my old post office. Shoot. Continue reading “5 Easy-to-Miss Tax Filing Mistakes”

Employee Tax Education: Are Prep Fees Too Taxing on Your Lower Income Workforce?

January 31, 2012

For many lower income employees, their yearly tax return provides more than just a refund of their tax withholding – it can include refundable tax credits that can add thousands of additional dollars to their bank account. The Earned Income Credit http://www.irs.gov/individuals/article/0,,id=150513,00.html (EIC) can add up to $5,751 for a working parent with 3 or more children making a yearly income of less than $43,998 and if the kids are under age 17 there could be up to an additional $1,000 child tax credit for each. Because of these large refunds, many tax preparation services aggressively go after these taxpayers with the temptation of getting their refund immediately, instead of waiting the average 2 weeks it takes to get their tax refund directly deposited by the IRS. Continue reading “Employee Tax Education: Are Prep Fees Too Taxing on Your Lower Income Workforce?”

The Basics of Income Taxes

January 25, 2012

Every year around this time we at Financial Finesse see an increase in demand for our Tax Basics workshop. The thing about our Tax Basics workshop is that it is exactly what it says it is—basic. We don’t discuss tax theory. We don’t attempt to understand the alternative minimum tax. Instead we focus on the tax concepts that affect the majority of taxpayers across the U.S. Understanding things like tax credits, exemptions, and deductions is critical to making sure you don’t end up on an H&R Block commercial finding out that you “voluntarily” let the government have over $8,000 because you didn’t know the tax benefits of education (in case you are interested, see IRS publication 970, Tax Benefits for Education). Continue reading “The Basics of Income Taxes”