Category: Common Tax Mistakes

The Truth about Year-End Taxes

1/2/2020

There are many loose ends you need to tie up at the end of any year for your personal taxes and those of your small business. You also need to be staying on top of the many changes coming your way in 2020 taxes. You might have more work ahead of you, so it's better to be prepared now for what is quickly heading your way.

You've made it through the holidays and all the celebrations that go along with them, both in your job and with your families. As tax season approaches for the 2019 fiscal year, you need to start thinking about a few new changes that you'll be seeing sooner rather than later, along with tying up a few loose ends.

Do yourself a favor and don't put yourself in a bad position scrambling to figure out what has changed in health care and new tax legislation. Use this blog and other resources to stay up to date with this information. Try and update yourself at least once a quarter, and keep your eyes and ears open to what might be heading your way. The information is out there for you, don't avoid it.
If you aren't prepared or wanting to stay on top of this information, hire and work with someone who is.
You must figure out what year-end tax reporting requirements have changed between the last tax season to now.
You need to figure out what new tax compliance challenges 2020 is going to bring. There are also a handful of changes that you will be seeing come this tax season as well.

In this blog, we won't be discussing all of the changes that are heading your way. We will just be touching on some of the most important. You will see changes in the W-4 form in 2020, in State withholding, Federal W-2s and State Deadlines, ACA Compliance from the State, and in Gig Economy and worker classification.

Changes with W-4 Forms
In 2020 you're going to see changes with the IRS W-4 tax form. They have changed the form and given it a bit of a facelift. The changes include calculations for income tax withholding. There is a new form that has been added for the head of the household as well. The new form eliminates withholding allowance. As an employee, you will just adjust your withholdings by putting your tax information on your W-4 forms. This will include non-wage income, full-year deductions, and any child or any other dependent tax credits. If you own a small business or are getting a new job in the year to come, filling out tax papers will be much different than previous years. Since you probably don't know all of your tax information off the top of your head, and you probably won't be carrying around copies of last year's tax refund, take more time filling out the paperwork. If you are a business owner, allow your employee to take it home. Ask your new employer for a private space to call home or your tax professional to fill out all the information. If you are happy with your current withholdings at your job now, you will not need to fill out the w-4 form again. If you need to change anything for your future taxes, you will have to fill out the new paperwork.

State Withholdings
The new W-4 paperwork could affect state tax withholdings. Many states are still trying to figure out how to work with these new changes, so you or your small business won't be the only one trying to follow along. You will need to prepare for these changes by the end of next year, as their decisions on how to deal with these new changes will also affect how you file your taxes. The main issue many states are dealing with right now is the fact that there is no longer a box for allowances on the federal tax forms. Different states are picking different ways to handle the situation. One option that might become the norm is taking the focus away from income tax and shifting to pay-roll taxes. This might not be a very fun solution for many of us, but be prepared. When it's time to do taxes and paperwork for 2020, make sure to pay attention to the choices your state has made to deal with the W-4 changes.

Federal W2s and State Deadlines
In 2020 the tax rate will remain the same for employees and employers, at 6.2%. Medicare tax rates will also stay the same as they were in 2019. The IRS has now moved up the W-2 submission deadline to January 31st. They have done this to continue the fight against tax fraud and identity theft. Most states will now require electronic W-2 filing from your employers. Many states have also increased the penalties for late filings of W-2 forms. Be very aware of these due dates. These fees can add up very quickly and become very costly.

The good news for you, if you're feeling overwhelmed for next year's tax season, is that we are here to help you keep up to date on these changes. We are here to help you understand them, help guide you through them, and prepare for them. These charges vary from small differences to ones that will affect you on a state and federal level. Just like any tax law changes, the new ones we will be seeing in 2020 will evolve into others. So don't get too comfortable. Stay connected, educated, and ready for the unexpected.

0 Comments

A Gift for Everyone this Season

12/24/2019

0 Comments

This season is meant for celebrating, and no matter how you celebrate it can be overshadowed by the fear that tax season is getting closer. But fear not, we have the perfect gift you can give yourself to make this tax year and the years to come pain-free with more celebration in store for you!

The holidays are here, and with a rush of mistletoe and delicious treats, in comes the last fiscal quarter of 2019. We've made it, and that in itself is a reason to celebrate. While we sit here enjoying a mug of holiday cheer, we can't help but start to think of tax season. We are about to put this year to sleep and tuck it in to the IRS come April. But come January 21st, the IRS will start taking e-file returns, which means getting your tax return back even sooner! There is one more step you can go about doing to make your tax holiday season even better. That is to gift yourself with hiring a Tax Professional!

Perhaps you've done your taxes for the last handful of years. That's amazing, ambitious, and very time-consuming. We understand your hesitation in hiring someone to help you with your taxes. It does cost money. But in the spirit of giving, we want to pass along five of the top reasons why you should consider hiring a tax professional to do your 2019 taxes!

Going about doing your taxes alone is hard. You have to stay up to date on tax code and low, and how it affects you personally depending on your profession. Guess what? A tax professional is paid to do that for a living! They know the ins and outs of this daunting task so you don't have to.
The goal of getting your taxes done as soon as possible is to get as much back in your bank account or keeping as much in your bank account as possible. A tax professional is paid to find any missing deductions or tax credits your eye might not see, notice, or understand. This could automatically mean paying less or getting more back in return. Think about it this way: This could even mean covering the cost, if not more, that you are dedicating to your tax professional.
It will save you time! Your time is worth money, spending it with your loved ones, and doing the things you love. It is estimated that filing out, gathering receipts, and filing a tax return can take up to 20 hours or more. That's half your work week! Do you want to give up all of that in free time or lose hours at work? I would say not! Let the professionals take care of this for you, so you can have more time for what matters!
If this is your first time working with a tax professional, they might save you more many than just on this year's tax return. They can look at and review your previous tax returns to see if any deductions or tax credits were missed there too. If so, they can have these issues amended, meaning more money for you!
One of the scariest and most difficult things to come across with your taxes is an audit. The stress of going through and meticulously proving your write-offs, correcting mistakes, and other missing pieces is horrible. This can be financially taxing too because it could prevent your tax return from arriving when you expected it or cause you to pay more in missing tax money you didn't pay correctly. Then, of course, what about the questions you can't answer that the IRS is imposing on you? A tax professional can not only prevent an audit with meticulously filed paperwork, but they are also there with answers to even questions the IRS might have for you!

In five easy steps, this can be the best holiday yet. Fill your mug up with holiday cheer and settle into the last few weeks of the holiday. Don't fear tax season. 2020 is going to be an excellent year, just you wait! From all of us at Hoods, we wish you and yours a wonderful holiday and a happy New Year!

0 Comments

Late for a Very Important Date

11/1/2019

0 Comments

What happens if you are unable to pay your taxes on time? Are there other options for you? Don't panic, that is what we will be discussing!

Tax Day will be here on Wednesday, April 15, 2020, if we are ready or not. You can file your taxes as soon as you get all of your W2s, 1099s, and other tax forms from your employers. One of the perks of filing early is getting that prized tax return early. You should receive it within three weeks of filing. If you file your taxes sooner than most, you won't be fighting against the crush of everyone else who waited until the last moment to get everything filed. But what happens if you've filled out all your tax paperwork and you can't pay what you owe the IRS? What happens if you don't fill out your paperwork and file on time? Take a breath and let's review some options out there for you.

The Bottom Line

First of all, there are options for you so don't panic. If you are unable to pay on time, immediately file for an extension. Once you do this, you have to pay attention and stay on top of your extension just like you would any of your bills. Please know that there are penalties if you don't pay on time and a separate penalty for not filing on time. Not being able to file on time is a much larger penalty than not being able to pay on time. Failure to file is 5% of the money due per month and can go up to 25%. Failure to pay is .5% of the money due up to a max of 25%. If you can't pay right away, at the very least fill out and file your taxes. This way you are aware of how much is due and can hopefully avoid some of these penalties. But interest does add up until your tax bill is paid in full.

Possible Options

Try and find some options to help you pay on time. See if you can borrow money from family to help pay, get an advance on your next paycheck, or sell items you no longer need or use anymore. You can dip into your savings if you need or even tap into your 401(K). These aren't ideal options, but they will help you in the long run. You can pay your taxes with a credit card, but to do this you have to contact a special service provided through the IRS. You will be charged a continuance fee to do so and that adds up to be about 2.5% of what you're already paying. You will also incur interest charges if you can't pay off the credit card payment quickly.

Not Quite Enough

If you can't come up with the money and you don't have a credit card to use, you can work out an installment plan with the IRS. You will need to fill out form 9465, the Installment Agreement Request, and attach it to the front of your income tax return. You might even be able to request a payment plan online. This doesn't mean you can avoid paying interest on what you still owe. This interest will still accrue until everything is paid off. But in this situation, the IRS can reduce any failure to pay penalties.

Not Even Close

If the amount you owe is so large and there is no way possible that you will be able to pay, there is a program called Offer In Compromise, where the IRS may take less than the full amount that you owe. To do this you need to complete form 4334 and 656, along with a collection information statement. You will also need to provide a total financial statement. This includes a list of everything you own, all of your debts, your income, and the amount you can pay right away to make a compromise with the IRS. The IRS will then review this information to see if they will accept the compromise. You are required to pay all tax liabilities on time for the next five years for this compromise. If this requirement is not met, the whole original amount of your taxes will be your responsibility again, more penalties will be added on, and the IRS can get money from you in many other ways that could hurt and damage your credit score, like filing a lien on your property.

Options

The IRS website tells taxpayers not to panic if you can't pay on time, and lays out the general options for you. The big thing they stress is to file on time and then contact them right away to talk about your money situation. Don't hide from them. They will find you one way or the other, you won't fall through the cracks. The IRS can temporarily delay collection by reporting your account as currently not collectible until you can pay, in some circumstances. But they will be more willing to work with someone who is upfront and comes to them rather than those who hide or lie to them. What can help in the long run is making sure the right amount is being taken out of your paychecks, so the amount owed at the end of the year isn't as painful. If you operate as an independent contractor, save a percentage of every paycheck to make up for the fact that no one is taking anything out for you.

Not being able to pay your taxes can cause huge amounts of stress and panic, but try and not let it. Just make sure you are using the options and resources available to you. You will make it through this tax season, and many more to come! For more information and help from the IRS follow the link below!

https://www.irs.gov/newsroom/what-if-i-cant-pay-my-taxes

0 Comments

Common Mistakes for the First Time Tax Payer

10/16/2019

0 Comments

Preparing and paying your taxes for the very first time is a terrifying rite of passage into adulthood. But for a first-time taxpayer, it's easy to scare yourself into making very simple and easy mistakes. Take the time to take a deep breath, check your work, and understand what you're doing!

The very first time you pay your taxes is scary. It's scarier than this Halloween season. For most of us, our first tax experience comes with our first job while we are still in high school and living under our parent's roof. But once the safety blanket of Mom and Dad helping you file your taxes or taking you to their tax accountant goes away, things can get pretty dicey. You're out in the world for the very first time worrying about some huge adult things. Where are you going to live, how are you going to get around, how will you pay your bills, can you feed yourself, what will your job be? Those are huge learning curves, and we all go through them. And just like those learning curves, taxes have their curve too.

Most first-time taxpayers are just afraid they'll do it wrong. Afraid they'll miss a signature, not understand the paperwork, or not provide the correct paperwork to prove write-offs or prove their source of income. Sadly, this will happen for most first-time taxpayers. These mistakes can cause your return to be delayed or you can receive a terrifying official letter from the IRS. The letter will point out the mistakes you made, and you will have to correct them all before seeing your tax return. Take a deep breath, we are here to help you solve those issues.

In this blog, we will be discussing some of the most common mistakes made by first-time taxpayers and how to prevent them from happening!

The Basics

It all starts with filing, right? One of the first mistakes made is hearing that you can pick up your official tax forms from the library or download them off the IRS website and print them off. These are all true statements, but you'll be stuck with a pile of papers you might not understand. You might even grab the wrong set of forms. For a first-time taxpayer, the best way to start off and even continue paying your taxes through the years is by investing in a tax preparation software - like Quickbooks. It comes with an impeccable FAQ, an easy how-to guide, and the software guides you through the proper paperwork to correctly file your taxes. It also helps determine what you can write off, what documents you need to complete these write-offs, and what paperwork you will need to save for future tax seasons. It also has an option to store all of this information for you in its database, so you can learn to upload and save everything you need right away and not have a huge stack of important papers, receipts, and documents just lying around waiting to get thrown away on accident. Also good to know, if your gross income is $66,000 or less the IRS offers free file software, too! It might be a pain to pay them every year - but at least they're being helpful about it!

The Numbers

Believe it or not, one of the most common mistakes when filing your taxes is entering the wrong social security number. We get it, you're nervous and overwhelmed. But take the time to take a deep breath and to dig out your social security card and keep it handy while you're filing your taxes. Once you're finished, take the time to check your work. Take a little walk down memory lane and make all of your math teachers happy by checking your work. Entering the wrong SSN can lead to the delay in processing your return and it can also lead to the IRS rejecting exemptions for dependents.

The Side Jobs

It's very common today, especially for younger taxpayers, to have multiple sources of income. This is very true when you're an independent contractor or self-employed. Learning all the finite details of filing multiple w2s or I9s is very tricky, and can become even more difficult if you've worked in multiple states during that tax year. Each state will have its own little different tax laws on how to file these forms. Often in these situations, the young taxpayer fails to include all sources of income. Many decide just to put down the ballpark number of their yearly income. When you receive a 1099 or any other similar tax document, the IRS receives one too. It's their job to compare all of your documents with the ones they've already received and to catch any mistakes. This kind of mistake can increase the chance of being audited, and that is not what you want.

Tax season might still be a few months off, but we wanted to put any worried first-time taxpayers at ease. If you're a parent, family member or friend of a first-time taxpayer, share this with them! We are sure you remember how hard it was the first time you paid your taxes. Remember, we also offer the best Quickbooks training and Quickbooks services in Goose Creek, and are happy to help you and your family whenever you need it. Please don't hesitate to reach out!

0 Comments

Hoods Tax & Accounting Blog

The Truth about Year-End Taxes

A Gift for Everyone this Season

Late for a Very Important Date

Common Mistakes for the First Time Tax Payer

Author

Archives

Categories