What If I Can’t Pay The Tax By April 15?

Oh crap.  You just found out you are going to owe an arm and a maybe a leg to Uncle Sam this year.  And April 15 is just a few days away.

Do you have any clue how you’re going to come up with the money?  What if you just don’t have it?

First of all, if you are getting this surprise, you either have the wrong accountant, or you are not giving your accountant enough information throughout the year to be much of a help to you.  Be proactive about this stuff, and then find an accountant who is also proactive enough to hold you accountable (pun intended).

Here’s is what the IRS recommends if you need more time to pay:

• File On Time!  People who owe taxes but can’t pay the full amount owed by the April deadline should still file their return on time and pay as much as they can to avoid penalties and interest.  If you can’t pay the full amount, you should contact the IRS to ask about alternative payment options.  Late-filing penalties are worse than late payment penalties, so at a minimum, file that tax return.
• Additional Time to Pay.  Based on your circumstances, you may be granted a short additional time to pay your tax in full.  A brief additional amount of time to pay can be requested through the Online Payment Agreement application at IRS.gov or by calling 800-829-1040.  Taxpayers who request and are granted an additional 30 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.
• Installment Agreement.  You can apply for an IRS installment agreement using the Web-based Online Payment Agreement application on IRS.gov.  This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval.  You may also complete and submit a Form 9465, make your request in writing, or call 1-800-829-1040 to make your request.  For balances over $25,000, you are required to complete a financial statement to determine the monthly payment amount for an installment plan. For more complete information see Tax Topic 202, Tax Payment Options on http://www.irs.gov./
• Pay by Credit Card or Debit Card.  You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards.  Additionally, you can pay by using your debit card.  However, the debit card must be a Visa Consumer Debit Card, or a NYCE, Pulse or Star Debit Card.  To pay by credit card or debit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions.  There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee.  If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying.  If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95. Do not add the convenience fee or flat fee to your tax payment.

The processing companies are:

Official Payments Corporation To pay by debit or credit card: 888-UPAY-TAX (888-872-9829) www.officialpayments.com/fed

Link2Gov Corporation To pay by debit or credit card: 888-PAY-1040 (888-729-1040) www.pay1040.com

RBS WorldPay, Inc. To pay by debit or credit card: 888-9PAY-TAX (888-972-9829) www.payUSAtax.com

For more information about filing and paying your taxes, visit http://www.IRS.gov and choose 1040 Central or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. You can download forms and publications at http://www.IRS.gov or request a free copy by calling 800-TAX-FORM (800-829-3676).

4 Reasons to Incorporate Your Sole Proprietorship

Are you a sole proprietor who’s been thinking about forming an LLC or corporation?

Here are four reasons to consider doing so:

1. Liability protection.   When you operate your business as a sole proprietorship, your personal assets are at risk.  If something goes wrong in your business, and you find yourself the defendant in a lawsuit, your personal assets can be used to satisfy the claims of others against you.  If you own a home, investments, or have other assets that you don’t want to risk, forming an LLC or a corporation can limit your liabilty to only the extent of your ownership interest in the corporation.  (Ask a lawyer about the rules in your state or industry)

2. Avoid double taxation on profits.   You get the benefit of liability protection whether you form a C corporation or an S Corporation.  So which type of corporation is better? Several factors come into play when determining the answer to that question, but one benefit of the S Corporation is that you avoid the C Corporation’s double taxation of corporate profits.  C Corporation profit is taxed twice – once to the corporation and a second time to the individual shareholders.  The S Corporation profit is only taxed once – to the individual shareholders on their personal income tax returns.

3. Reduce self-employment tax.   As a sole proprietor, your profits are subject to both income tax and the dreaded self-employment tax.  When you form an S Corporation, your profits are still subject to income tax, but profits legally avoid the self-employment tax.  If you are working as an employee of the corporation, you will incur payroll tax on that compensation (which is the equivalent of self-employment tax), but paying yourself reasonable compensation will often result in a lower overall tax liability, and the tax savings can be significant.

4. Reduce IRS audit risk.  It’s a known fact that sole proprietors are audited at a higher rate than corporations.  Owning a sole proprietorship means filing a Schedule C; and filing a Schedule C is like putting a big bulls-eye on your personal income tax return.  Forming a corporation removes the Schedule C from your personal tax returns, because a corporation files its own separate income tax return.

Keep in mind that the S Corporation isn’t necessarily the best entity choice for all small business owners.  For many sole proprietors, it is the best entity.  But several other factors come into play, such as the nature of the business, what kind of products or services it provides, and whether real estate is owned by the business.  So please do not make a decision based only on the four benefits described above.  With the help of a competent tax professional (I happen to know one!), you can do a thorough analysis of all the advantages and disadvantages of forming an S Corporation.

To schedule your Extreme Tax Makeover appointment, and determine which entity type (or types) are right for your business, give me a call at 203-767-7197!

Robert Gambardella, CPA CTC

www.ConciergeTax.com

Independent Contractor or Employee? 7 Ways To Stay Out of The IRS Dog House

Hi Everyone,

At least once a day I am asked one question or another that points directly to the “independent contractor vs employee” issue.

Its one of the most controversial issues that business owners face, especially new business start-ups who are hiring for the first time.

Is the person you are about to hire an employee or an independent contractor?

The answer to that question is critical.  And if you don’t answer it correctly, you can end up in big trouble.

If you treat someone as a contractor and that person is really an employee, the IRS can re-classify that person as an employee and you’ll be responsible to pay the taxes that should have been withheld from his/her paychecks, plus the employer’s payroll taxes, plus penalties and interest for late payment.

That can get ugly!

So it’s in your best interest to get this right.

Here are some tips to help you make the correct classification, courtesy of the IRS:

7 Things Every Business Owner Should Know About Independent Contractors vs. Employees

1. The IRS uses three characteristics to determine the relationship between businesses and workers:

– Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.

– Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.

– Type of Relationship relates to how the workers and the business owner perceive their relationship.

2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.

3. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.

4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.

(As I said before…..this can get really UGLY!)

5. Workers can avoid higher tax bills and lost benefits if they know their proper status.

6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link.

Additional resources include: – IRS Publication 15-A – Employer’s Supplemental Tax Guide – IRS Publication 1779 – Independent Contractor or Employee – IRS Publication 1976 – Do You Qualify for Relief under Section 530?

These publications and Form SS-8 are available on the IRS website (www.IRS.gov) or by calling the IRS at 800-829-3676.

Top 10 Funny Tax Quotes

Hello Everyone,

With just 20 days left to file, I hope you haven’t completely lost it!

(“It”, of course, being your mind, or your hair, whichever you had more of to start with!)

Are you one of those procrastinators that will file on the last possible day?  I call those the “buzzer-beater” tax returns!

Or, are you the early bird that already filed and spent your refund?!?!

As always I am happy to provide your entertainment, whether you are laughing or crying right about now about your taxes.

Here’s my Top Ten Favorite Tax Jokes & Quotes, courtesy of the rich and famous:

#10 — Mark Twain  “The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.”

#9 — Arthur Godfrey  “I am proud to be paying taxes in the United States. The only thing is I could be just as proud for half of the money.”

#8 — John S. Coleman  “The point to remember is that what the government gives it must first take away.”

#7 — Herman Wouk  “Income tax returns are the most imaginative fiction being written today.”

#6 — Winston Churchill  “There is no such thing as a good tax.”

#5 — Albert Einstein  “The hardest thing in the world to understand is the income tax.”

#4 — Robert A. Heinlein  “Be wary of strong drink. It can make you shoot at tax collectors . . . and miss.”

#3 — Barry Goldwater  “The income tax created more criminals than any other single act of government.”

#2 – Rush Limbaugh  “If Thomas Jefferson thought taxation without representation was bad, he should see how it is with representation.”

#1 – Dave Barry  “It’s income tax time again, Americans: time to gather up those receipts, get out those tax forms, sharpen up that pencil, and stab yourself in the aorta.”

If you are ready to scream “Uncle!” and are looking for help this time of year, I am still accepting new clients.

So give me a call at 203-767-7197 if you need help with your income tax returns.

For more information, visit www.ConciergeTax.com or email me:  Robert@ConciergeTax.com

Best,

Robert Gambardella, CPA CTC

Surprise! Your Itemized Deductions May Fall Off The Cliff in 2013

While reviewing 2012 tax returns with a client, I showed him my usual “crystal ball” analysis into what his 2013 taxes might look like.

He was shocked by the impact the new tax laws will have on him next year.  He was well aware of the higher tax rates and the new Obamacare taxes.  But he lost his mind when I walked him through the “Pease Limitation” calculation and how it will impact his 2013 tax bill.  He asked why the media hasn’t given this more coverage.  And then we scheduled some post tax-season planning sessions!

Here is how the new limits on itemized deduction will work:

• Joint filers earning more than $300,000 and Single Filers earning more than $250,000 will be impacted
• Schedule A Itemized Deductions will be limited by the lesser of:
  • 80% of total deductions, or
  • 3% of the excess AGI above the $300K/$250K limit
• Medical expenses, investment interest, casualty/theft, and gambling loss deductions are not subject to the limitation calculation

In my client’s case, his itemized deductions will take a $15,000 haircut next year, costing him an additional $6,000 in taxes.  He will essentially lost the tax benefit of all of his mortgage interest, charitable contributions, and a good portion of his property taxes.

Planning opportunties?  Of course!

Here are some options worth analyzing:

• Maximize contributions to pre-tax retirement plans, including catch-up contributions
• Pay down or pay off remaining mortgage balance
• Carefully “time” contributions and property taxes to occur in alternate years to lessen the limitation impact, or to fall in years where income will be lower
• Be sure to include the additional tax impact in your quarterly estimated tax payments to avoid unnecessary underpayment penalties

If you think the Pease Limitation will have an impact on your taxes too based on the above info, feel free to email me or give me a call.  I’d be happy to run some numbers for you and explore some of your proactive planning options.  After all, with 9 months left in the year, there is plenty of time to plan ahead and “change the answer” before getting whacked with a big surprise next tax season.

I can be reached directly at 203-767-7197 or via email:  Robert@ConciergeTax.com.

Visit my firm’s website for additional info:  http://www.ConciergeTax.com

Thanks!

Robert Gambardella, CPA CTC

 

 

I Live in CT, but work in NY, NJ, MA, RI, etc. Where do I pay the tax?!?!

Let’s face it, Connecticut is a really tiny state.  If there was some tax rule that required us to earn all of our income within state borders, we’d all pack up our things, jump on I-95, and never look back!

So I get asked this question alot, and there is alot of confusion out there.

Here is the simple answer:

1. You pay income tax to the state where you perform the work.
2. In the state where you reside, you pay income tax on ALL of your income.
3. Your state of residence will give you a credit on your resident state tax return for the taxes you already paid to other states.
4. That way, you aren’t double-taxed, you simply end up paying the difference in state rates on a net basis when all is said and done.

For employees, your companies should make this easy for you, by properly witholding your state taxes according to where you perform services for your employer through their payroll service.  This doesn’t always happen perfectly, but most employees working in multiple states should be able to get refunds from the states they overpay, in order to pay the states they underpaid over the course of the year.  You just have to file state tax returns and properly allocate all of your wages to get the correct answer.

For those of you who are self-employed and are paid on a 1099 Form rather than a W-2 Form, you are left on your own to figure all of this out, since there isn’t a payroll service sorting this out for you.  You would need to keep track of which states you earned your income in during the year.  By that, I mean the physical location that you actually performed the services from.  Set aside enough tax dollars to cover the amount of income you earned in each state, or make estimated tax payments over the course of the year to each state.  When you file your tax returns at the end of the year as described in the numbered list above, you will calculate your actual tax bill for each state, and either pay the additional tax you owe, or get a refund for any taxes you overpaid during the year.

Of course, it’s a bit more complicated than that in actual practice, and don’t even get me started about tax years where you were part-year residents in multiple states.  If you find your situation is out of control and need some advice, feel free to email me at Robert@ConciergeTax.com or give me a call at 203-767-7197.

Thanks!

Robert

Robert Gambardella Selected by Johnson Brunetti as Their Preferred Tax Resource

I am so pleased to announce an alliance I recently formed with the firm Johnson Brunetti, Retirement and Investment Specialists, located in Wethersfield CT.

By joining forces, I will be offering complimentary mini tax planning sessions to the clients of Johnson Brunetti.  These sessions are intended to identify tax dollars that would otherwise be wasted unnecessarily, and put a better plan in place to rescue and preserve that hard-earned money.  Like wise, Joel Johnson, CFP®, Managing Partner of Johnson Brunetti and his team of financial advisors are available to offer my clients retirement planning and investment advice, and a complimentary review focused on what they like to call a “Money Map”.  This is a one-page overview of your investments to identify where the strengths and weaknesses are.  They are a great group of guys, they run a fun and welcoming office, and I am excited to be a part of their team!

Excerpts from our recent press release is shown below:

“Earning the designation of a Certified Tax Coach denotes financial expertise, tax planning excellence and outstanding customer satisfaction.  Matching one of our expert tax advisors with a leading financial organization, such as Johnson Brunetti is a winning opportunity for everyone,” says Dominique Molina, co-founder and president of the American Institute of Certified Tax Coaches.

As the owner of Concierge Tax Services, LLC, Robert Gambardella implements his CTC training in proactive tax planning and specializes in finding deductions, credits, loopholes and strategies to help his clients pay less tax.  By customizing a client’s specific situation with the Tax Code, Robert and his team get the best possible outcome for his client’s tax and accounting needs.

Johnson Brunetti is a premier retirement planning firm serving the Connecticut area. They help Connecticut retirees get the financial guidance and service they need and deserve to plan for their financial independence.  Through careful analysis, Johnson Brunetti recommends quality solutions which meet their client’s goals and objectives. They apply their distinct perspective to each client’s individual circumstances, resulting in increased cash flow, building net worth and minimizing tax liability.

To schedule a free mini tax planning session with Robert, to see if you are paying more than your fair share in taxes, visit http://www.conciergetax.com/.

For more information about “The Money Map” investment review and financial advisory team, visit http://www.johnsonbrunetti.com/

“Secrets of a Tax Free Life” Celebrates One Year Anniversary

Me and my fellow co-authors recently celebrated the 1-year anniversary of our  Amazon Best-Selling book:

Secrets of a Tax Free Life:  Suprising Write-Off Strategies Most Business Owners Miss

For more details, or to purchase a copy, feel free to visit the Amazon.com website at the following link:

http://www.amazon.com/Secrets-Tax-Free-Life-1/dp/0983234116/ref=sr_1_1?ie=UTF8&qid=1363834349&sr=8-1&keywords=secrets+of+a+tax+free+life