Now that Tax Season is Over … Do I NOT Worry About It for Another 12 Month?
As CPAs and tax advisors, we would like to remind you of quite the contrary. Just because tax season is over and the LA weather is beautiful this time around doesn’t mean you should not think and strategize about how to properly prepare for the 2012 tax year.
Many of our Los Angeles CPA (Velin & Associates, Inc.) clients are having different reactions after submitting their returns. Some of our less prepared clients who waited until 2012 to think about what they earned in 2011 are still in shock because their liability was greater than what they’ve anticipated, while those who did some tax planning and called us with their plans this time last year are joyfully planning ways to spend their big refunds.
As long time tax-practitioners and accountants, we realize that much of your hard earned money ends up in the government’s spending account. Therefore, we urge you to consider legitimate ways of keeping more of it in your own pocket.
Here are some questions that you might have and some tips to help you plan for a happy experience next Tax Season.
Did you get a big fat refund for 2011? If you enjoyed a nice chunk of change this year, consider this: The IRS had your money all year long and paid you 0% interest!
There are two schools of thought on this:
- Some of our clients prefer it that way and look at it as a forced savings account, and since interest rates are at near 0% they rather have it be held by the government and then put their refund check directly into their savings and not worry about owing comes April 15th.
- If you have outstanding credit card debts or any other debts that you are paying high interest on, you might want to call your LA CPA, (Velin & Associates, Inc.) and ask us to help you adjust your withholdings so that you can use the extra cash monthly to either invest or settle your high interest debts. If interest rates that banks pay for savings accounts increase and you are disciplined, we may suggest you open a savings account. If your employer provides direct deposit, you can request that the extra cash goes directly to savings.
Do I need to refinance again or do a loan modification?
Interest Rates were at their all time low again last week and many of you (our clients) who are refinancing or going through loan modification programs are going to have your tax liabilities affected. Activities that will reduce your payments, forgive outstanding delinquent payments, and/or reduce your balance or interest rates, are going to increase your tax liability in many cases.
Several of our clients last year who refinanced to a 5 year fixed arm loan at rates around 2% were able to decrease their mortgage payments by more than half thereby reducing their deductions and increasing their tax liability. When clients lose that much of a write-off, it can cause mayhem on their tax bill. This being said, it doesn’t mean that it’s not a smart overall financial decision anyway. Call us and we will help you crunch the new numbers and adjust your withholding or increase your estimated tax payments accordingly.
If I have a business, can I throw away old payroll tax records? If I throw them out early, what harm can it do?
IRS says that you must keep records for at least four years after the due date for employees. Records to be retained include wages and payment dates, and employee data such as names, Social Security numbers and addresses. Also, retain copies of W-4 forms, payroll tax returns and valuation records for fringe benefits provided to employees. If you don’t keep these forms and have proper support you might have a serious issue on your hands if a payroll audit occurs and it could totally ruin your day, week or even month. We recommend that you keep electronic files of everything in pdf format and back up your documents on a regular basis.
I lost my job last year… Will I still have to pay taxes? I call this getting kicked while you’re down–but you need to plan for it. There is no state tax on unemployment income in California; however, you will be required to pay federal income taxes on the benefits. You can ask for federal withholding from the checks in order to meet this obligation.
If I am not able to pay my tax liability what do I do?
Couple of options here:
- You can extend the filing of the tax return, but it will not extend the fact that you were supposed to pay 100% of your tax liability by April 15th.
- If you filed the return but you were unable to pay your tax liability on April 17, you may request an installment agreement by completing and submitting an Installment Agreement by filing form 9465. Do not fill this form out if you can pay what you owe within 4 month of when it is due.
It’s important to determine why you aren’t able to pay your tax bill on time. Was it a one-time financial event that led to this problem or do you habitually find yourself owing and incurring penalties and interest? If the latter is the case, adjust your withholding or increase your estimated tax payments to cover your liabilities. The IRS is willing to combine an existing installment plan with a new one, but it does not take kindly to a third request if you already owe for prior years.
Will 2012 Tax law changes affect me? If you’re thinking is “I am just a little guy with a small S corporation” it will not affect me you are most likely wrong.
It seems as if tax law changes every 30 minutes, so be sure to keep an ear to the ground and learn about any new tax laws that could affect your financial situation.
It’s an election year and candidates want to be heroes, but the law changes they propose may not be helpful to you. For example:
Government again wants to start with a crackdown on a payroll tax gimmick involving S corporations.
- Many owners of S companies take artificially low salaries so they can receive the bulk of the corporation’s profits as dividends, which are not subject to payroll taxes.
The proposal by Senate Democrats is aimed at preventing hanky-panky in this area.
When in doubt if a new law applies, call your tax professional to discuss ways to minimize your liabilities.
Thank you for reading….