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Guest Post by Lee Reams As the end of 2021 approaches, it also means that the 2022 tax season is imminent. If your tax situation is pretty simple — for example, you don't take any deductions and your income only comes from one job — you may think that you don't need much financial planning in this department. But if you're a taxpayer who has more complex sources of income like freelance work or owning a business, or if you experienced a major life or career change in 2021, you'll want to get moving on your 2022 tax planning strategy right away. Even if your financial situation seems simple, understanding where your money is going can help you with both long- and short-term decision-making. How soon should I start the tax planning process? Now that December is upon us, you want to get started right away. Certain aspects of your personal finances can be handled up until mid-January or even later, like making a last-minute IRA contribution or an estimated tax payment, but for most of them, you will only have until December 31 to have them count for 2021. The holiday season can also be a busy and stressful time of year, and tax planning could be neglected as a result. Holiday credit card bills are tough enough to deal with in January, and the last thing you want is a higher tax bill that could have been prevented with proper foresight. What to prepare for in 2022 Retirement Have you contributed the maximum to your retirement assets yet? If not, are you financially able to? The maximum 401(k) contribution for 2021 is $20,500. If you are 50 or older, you can make extra catch-up contributions as well for a total of $27,000. The contribution limit for IRAs is $6,000 for 2021 ($7,000 if you are over 50), and you can make this contribution until April 2022 and have it count for the 2021 tax year. If you are self-employed and able to start saving significantly more than you used to, this could also be a good time to assess opening your own 401(k) or SEP account to take advantage of the significantly larger contribution caps compared to what IRAs offer. Marriage and divorce If you and your partner were planning your wedding in 2021, you should get a look at how your taxes would look as a married couple compared to filing as two single people. If there's a significant benefit, it could be worth going to City Hall at the last minute: You literally have until midnight on December 31 to be considered married for the entire year. (You can still have the wedding, but just be married in the eyes of the law and the IRS.) If this is your first tax year as a married couple, you may have some teething issues if you and/or your spouse have been used to the tax planning process while single. If you are more on the up and up with financial planning than your partner is or vice versa, end-of-year tax planning is a great time to start getting on the right track financially as a couple. Your taxes also may have changed, and this is a good time to review those changes and other bureaucratic hurdles, such as notifying the Social Security Administration if your name has changed due to marriage. The inverse is true for divorce as well. Divorce can be financially devastating for both former spouses, especially if you have children or are still having disputes over assets and prior tax problems. Regardless of the stage your divorce is in, year-end tax planning is when you need to determine how your tax situation is going to be different and how you can prepare. Withholding and estimated taxes Year-end tax planning is a good time to assess if you are having enough taxes taken out of your paycheck. It's not just federal taxes, but also state and local taxes. If you changed jobs, your employer changed payroll providers, or you moved, your tax withholding may have changed. Review all of your tax withholding and determine if you are having the correct amounts, and types, of income taxes deducted from your paychecks. If you start receiving other income like rent, a side hustle, or investment income, then you may need to increase your withholding. If you don't mind a smaller tax refund and would rather have more of your money every payday, you might want to reduce your withholding by increasing the number of allowances claimed. Fill out a new W-4 form, plus a state-level equivalent, and give it to your payroll department or provider. If you are self-employed and have to pay estimated taxes on your own, it's common to fall short every tax season. Take a closer look at your net earnings over each quarter and determine how you can stay on top of these payments so that you don't end up with a tax bill you can't pay. Automatic deductions into a savings account dedicated to taxes can help, or you can set reminders to pay estimated tax every month instead of every quarter. Starting a family If you adopted or had a child in 2021, this definitely changes tax planning for 2022 as well as your overall financial planning since your priorities completely change upon starting a family. It's important to track down records for your expenses pertaining to adoption and childcare because there are valuable tax credits for them. If you'd like to get a jump-start on saving for your child's higher education expenses, you can also open a tax-advantaged educational savings account like a 529 plan. You can contribute up to $15,000 for 2021, and although you don’t get a tax deduction for the contribution, the investment earnings accrue tax free in the account. In the future, the proceeds will be tax-free provided that they are used for qualified education expenses like tuition and books. What if I owe money? If your tax planning efforts determine that you will owe money when you go to file, this gives you time to discuss your options and tax reduction strategies with a tax professional. You may need to go on a payment plan or figure out a way to make more money before April 2022 so you can pay your tax bill without incurring interest, late fees, and other associated costs. If your total expected federal tax liability is less than $1,000, you won't be charged an underpayment penalty, so you can wait until you file your tax return to pay the whole balance. However, if it exceeds $1,000, you'll want to take advantage of that mid-January deadline to make one more estimated tax payment that counts for 2021 so you won't face an additional penalty on top of the taxes you owe. You want it to be at least be below $1,000 if you can't afford to front the whole amount at the moment. Another option: increase your year-end withholding. The further in advance you can get a jump on planning for 2022, the less stressed and broke you will be with another tax season on the horizon. When it comes to taxes, being proactive is the most important factor. Lee Reams Sr., BSME, EA is the Chief Technical Officer for ClientWhys, TaxBuzz, and CountingWorks. In addition to being an expert on taxation and a leading speaker on tax-related topics, Lee has experience in managing his own 600+ client tax practice.
Guest Post by Riley Adams You’ve worked hard to create a business worthy of being viewed favorably by someone else — if you’re lucky, multiple someones! The profit you’ve earned has paid off and now you have considered making a change in your circumstances. Quite often, a common exit path includes selling your small business. However, before proceeding, you will need to consider the tax implications involved. Like any other transaction which nets you a profit, the sale of a business qualifies as income and you must pay taxes on any gains recognized during the sale. The income received classifies either as a capital gain or ordinary income and applies whether you sold assets of a company or shares of a company’s stock. The type of company When selling your business, the tax consequences and liabilities you face depend on the type of sale and transaction structure you set in place with the buyer. Most sellers make the mistake of not consulting with a tax advisor and needlessly hand away tax payments to the government. When considering how much you might ask for in the sale of your business and how you will classify assets (e.g., Section 1231, 1245, or 1250 property, inventory, or another category), you should conduct some due diligence ahead of time and see if the type of company makes a difference. Specifically, you should understand the tax consequences involved when selling your business from different corporate organization structures like a limited liability corporation (LLC), sole proprietorship, partnership, C Corp, or S Corp. Knowing the corporate structure will guide your tax strategy when it comes to selling your business. For example, if you sell the assets held by an LLC and your transaction results in a gain, you will only pay capital gains taxes. In this instance, because the IRS treats LLCs and sole proprietorships as disregarded entities, you only have one taxable event, not a separate event on your personal income tax return and your commercial tax return. As an option, you can have any gains made from the sale of these capital assets only appear on your personal income tax return, often resulting in a lower tax burden because long-term capital gains are lower than short-term capital gains (also referred to as ordinary income). When you sell a business (LLC or S Corp), because you’ve likely held it for longer than a year, you usually prefer to have the capital gains treatment because the tax rates are lower and only occur once. Basket purchase vs. sale of stock A purchaser has two primary methods for acquiring a company: a basket purchase of the assets or outright purchase of the company stock. In the former, the underlying assets transfer from seller to buyer with the agreed-upon market price allocated to the assets. In other words, if an asset has a depreciated value of $50 but is sold for $60, this new value must be assigned to the asset at sale, which is then depreciated by the new owner. To formalize this price allocation in the eyes of the IRS, the buyer and seller both file a Form 8594: Asset Acquisition Statement with their tax returns. In the event of an all-stock sale (stock purchased instead of assets owned by the company), the seller will realize a capital gain just like they would on the sale of capital assets. The seller must also decide which entity is selling the stock: if the company sells the stock, then double taxation will occur (tax paid at the corporate rate and then the capital gains tax paid on a personal income tax return). If you sell assets through an S corporation or partnership, the individual owners (or shareholders) will each have a responsibility to pay capital gains taxes on their personal returns. Now, let’s take a closer look at the capital assets involved in a business change of ownership transaction. Capital assets Per IRS rules, capital assets categorize into one of three different groupings: Real property — Real estate property of the business, such as land and building structures. Sale of real property has tax levied as a separate capital asset unless the buyer chooses to purchase the entire entity. Depreciable property — Type of property which loses value over time with normal wear and tear. Such examples include equipment, hardware, computers, office furniture, etc. The IRS treats the sale of depreciable property as a gain or loss, based on current value. If you held the property for longer than a year, you will face a long-term capital gain or loss. You will use the current value versus the purchase price to decide the applicable tax rate for this depreciable property. Inventory property — As a going concern, most businesses hold inventory which it sells at a markup in the attempt to earn a profit. This inventory, when converted to sales, represents ordinary income and the IRS considers this as part of your normal business income. However, when the inventory counts as part of the business sale transaction, the IRS considers this as a capital gain (loss) instead. As mentioned above, in the case of owning and selling an S Corp or LLC, you will strongly prefer a long-term capital gain resulting from your sale. This results in single taxation on your personal income tax return and at lower long-term capital gains rates. How to sell a business without any tax implications If you want to have Uncle Sam left out of this transaction altogether, an alternative does exist in the form of a stock exchange. In the event you’d prefer having stock in exchange for your own company’s stock, as opposed to cash or other proceeds, you can avoid paying taxes on this stock-for-stock exchange. Certain provisions for avoiding taxation exist pertaining to this business reorganization; however, this method can avoid paying any taxes on the sale of your business. The IRS states the seller must receive between 50 percent and 100 percent of the buyer’s stock in order for the transaction to side step paying any taxes. Tax implications of selling a business Finding a buyer for your company is part of the natural lifecycle of a business. From founding, startup, scaling and maturation, selling to an interested buyer only amounts to the next phase of your business’s life. When deciding how to structure the transaction, make sure you plan ahead on how you will classify the various assets of the business as well as how you might be able to avoid paying taxes at all on the sale. Riley Adams, CPA, is a senior financial analyst working for a Fortune 500 company in New Orleans, Louisiana. He also runs the personal finance blog called "Young and the Invested," a site dedicated to helping young professionals find financial independence and live their best lives.
Being your own boss and calling the shots makes self-employment very appealing. However, self-employment also comes with additional responsibilities, like being fully responsible for your taxes. Before you start your self-employment adventure, understand how self-employment taxes work and make a plan to pay them. Here are five things tax experts suggest considering when becoming your own boss. Key Takeaway: Know your responsibilities. Understand your full tax liability Consider incorporating Pay taxes quarterly Know what the penalties are Keep good records Understand your full tax liability If you’re transitioning from being a W-2 worker to self-employment as a sole proprietor or in a partnership, your tax liability changes. You’ll also need to become familiar with Schedule C (Form 1040) to report on your business’s gains and losses. You’re still responsible for state, local, and federal taxes, including FICA taxes. FICA taxes are the Social Security and Medicare taxes that workers pay. “For those who are self-employed, they bear the entire tax burden of paying taxes into Medicare and Social Security. For those not self-employed, their employer is responsible for half of the FICA taxes due,” says Chane Steiner, CEO of Crediful. Since you’ll be responsible for your full FICA tax obligation instead of splitting it with your employer, you need to figure out how they’re determined. “There may be ways to see how you should handle FICA taxes because they’re are assessed on self-employment income, but not profits. Accordingly, if you were to incorporate your self-employed business and pay yourself a salary, any profits would not be subject to self-employment taxes, but the wages you pay yourself would be subject to self-employment taxes. You should contact a qualified CPA or attorney who may help you with this distinction,” advises Paul T. Joseph, attorney and CPA with Joseph & Joseph Tax & Payroll. It’s also important to keep a good financial record, especially if you haven’t incorporated. “They are not being paid a wage and instead, a self-employed individual must keep a set of books showing income and expenses associated with their self-employed business allowing them to determine taxable profits (or losses). While an employer and an employee each pay half of the FICA taxes due on an employee’s wages, the self-employed person pays 100 percent of these taxes — termed the self-employment tax (SE tax for short) — on their self-employment profit. If the individual has more than one self-employment activity, the net profits and losses from all the self-employed activities are combined to determine the amount of the SE tax,” says Lee Reams, Sr., BSME, EA and Chief Content Officer with TaxBuzz & CountingWorks. If both you and your spouse are self-employed, you are not allowed to combine your self-employment income when calculating taxes. “If married and both spouses have self-employment income, the couple cannot combine their SE incomes when figuring their individual SE tax,” says Reams. While ensuring that your federal tax obligations are met, it’s also important to understand what your tax obligations are for your state and in states you offer services to. “In addition to paying the federal government, business owners need to remember to pay estimated taxes to the states in which they do business. If the business provides goods and services to clients in multiple states, the business may need to pay estimated taxes to all of those states based on the revenue from each state,” says Beth Logan, EA, Kozlog Tax Advisers. Consider incorporating The amount you pay in taxes is calculated differently depending on whether you’ve formed a corporation or just operate as a sole proprietor. If self-employment is going to be your main source of income, it can be a good idea to form an S-corporation for tax purposes. An S-corporation is an entity that gives its total income, losses, deductions, and credits to its shareholders, which means that shareholders can report the income on their personal taxes to be taxed at their normal income rate. If you’re self-employed and form an S-corporation, the S-corporation would pay you a salary for the work you do. “Self-employed people should begin by setting up a company taxed as an S-corporation. By setting up this business entity, it allows self-employed to minimize their FICA taxes since income earned through an S-corporation is not subject to FICA taxes — only the salary they pay themselves (which must be reasonable) is subject to FICA. An S corporation, reported properly, will also minimize the chance of an IRS audit. Keeping good documentation, including receipts, for all income and deductions is essential as well,” advises Tom Wheelwright, CPA, CEO of WealthAbility and author of Tax-Free Wealth. When deciding whether or not to incorporate, it’s a good idea to meet with a tax professional to get advice specific to your situation. Pay taxes quarterly W-2 filers have their taxes withheld throughout the year and may only think about paying taxes when it’s filing time in April. “To manage their tax liability, self-employed should make estimated payments each quarter so they don’t get a big surprise in April. Most importantly, these individuals should hire a qualified tax advisor and an attorney to help them get everything set up properly and to minimize tax liabilities,” suggests Wheelwright. If you’re self-employed, you’re taking full responsibility for your taxes. Whether or not you’ve incorporated, you’ll need to make quarterly tax payments. “These estimated taxes are paid with an IRS Form 1040-ES and include the taxpayer’s income and SE taxes. In lieu of filing Form 1040-ES and sending a check to the U.S. Treasury, the payments can be made online through the IRS’s website or by using the government’s Electronic Federal Tax Payment System (EFTPS), which allows payments to be scheduled up to a year in advance, by having payments automatically withdrawn from the individual’s bank account at specified dates,” suggests Reams. Looking at the IRS’s schedule and deadlines for quarterly payments will help you make sure you’re paying on time. “Since self-employed taxpayers need to pay estimated taxes quarterly based upon their taxable profits for the quarter and, after the first quarter of the year, taking into account prior quarterly profits and estimated taxes already paid for the year,” says Reams. To make quarterly payments, you’ll need to estimate the taxes you owe. Be sure to include all of your income when making this estimate. “Remember tax pre-payments are not just based on the self-employment income and must factor in all other taxable income including investment income, retirement income, the self-employed individual’s wages from other work, and a spouse’s wages or self-employment income, as well as account for withholding from other sources,” adds Reams. How you calculate an estimate will vary depending on how you’re filing. Tiffany Powell, Sapphire Bookkeeping & Accounting Inc Owner, has tips for S-corp and Schedule C filers: “If you are self-employed filing as an S-corp, we want to make sure that the required salary is reasonable and has the necessary withholding to cover all the taxable income at year-end so that payments are made throughout the year in smaller payments. If a client is being taxed as a Schedule C, we plan using estimated tax payments or increasing a spouse's withholding to cover the taxes owed on the additional income. The state you are located in will determine what amount of money should be set aside for taxes. You always want to use your effective tax rate plus about 10 percent to cover the Self Employment tax for Social Security and Medicare after adjustment.” Working with a tax professional can help you navigate this process successfully. A tax professional can also give you advice tailored to your situation. You can also work through the process yourself. However, it’s important to be sure that you know what you’re doing because you want to make sure you’re paying your taxes correctly. “You can always fill out the tax form and pay by check. You can also use https://www.officialpayments.com or services like these to pay by credit card or bank transfer,” says Aalap Shah, 1o8 Founder and a former accountant. Know what the penalties are If you’re paying estimated taxes quarterly, it’s important to have good estimations to avoid penalties. “If a self-employed taxpayer pre-pays less than 90 percent of their current year’s tax liability, including Social Security and Medicare taxes for the year, they can be subject to a penalty which assesses interest on underpayments by the quarter,” says Reams. While it’s important to be aware of this penalty, it’s also important to realize when there are exceptions. “The underpayment penalty does not apply where the final amount due on an individual’s tax return is less than $1,000. The penalty also does not apply where a taxpayer, for a full 12-month year, did not have a prior year tax liability,” Reams continues. Self-employed taxpayers can make estimates based on the current year’s revenue or use safe harbor methods to avoid these penalties. Reams identifies two safe harbor methods: “100 percent of the prior year’s tax liability paid evenly for each quarter provided the prior year’s adjusted gross income was $150,000 or less ($75,000 if using the filing status married filing separate). 110 percent of the prior year’s tax liability paid evenly for each quarter if the prior year’s adjusted gross income was greater than $150,000 ($75,000 if filing married filing separate).” The safe harbor methods may make more sense in some situations and can be less advantageous in others. “One thing to consider when deciding whether or not to use the safe harbor method is that since the safe harbor estimates are not based on current year’s profits, a self-employed individual could be in for an unexpected substantial tax liability at tax time. Or, if their current year income is significantly less than it was in the prior year, they could be overpaying their current year tax and be eligible for a large refund when they file their current year return. If an overpayment results, all or part of it can be applied to the next year’s estimated taxes instead of receiving a refund payment,” says Reams. As you evaluate your self-employment income and projections for the current tax year, you’ll be better able to weigh your options and determine how you’re going to calculate your quarterly tax payments. If you have specific questions, it’s always worthwhile to talk to an accountant or attorney who specializes in taxes. Keep good records Taxpayers who are self-employed have a higher chance of getting audited, so it’s even more important to be sure you have good financial records if you’re self-employed. “We recommend keeping separate bank accounts for business and personal so that income and expenses are easily traceable. It is also recommended that you keep some kind of bookkeeping whether an app or by paper so that you can verify your income and expenses,” offers Powell. Shah has done this for his expenses: “The best and easiest way that I handle keeping track of my records is to use one credit card and bank account that records my income and expenses. I have connected it to Quickbooks for ease of record keeping and use my google calendar to record travel expenses or milage when the need arises. You can use Evernote to keep receipts and other docs on the go but I find that having limited options to spend and record income keeps everything centralized and easier to manage at tax time,” he suggests. Having good records and keeping your business expenses separate from your personal ones will help you be prepared in the event of an audit. Working with a tax professional and following these five tips will help ensure that you are meeting your tax obligations and are prepared in the event of an audit.
There is a lot to consider when planning for retirement. To take full advantage of investing, it’s a good idea to start early. It’s also important to think about inflation and that health care expenses will likely increase the older you get. Here are what experts say you should think about as you save for retirement: Determine how much you’ll need Josh Zimmelman, Westwood Tax & Consulting Owner“You need to look at your savings and figure out when you can actually afford to retire and how much longer you need to continue working. Be realistic. Better to push your retirement back a few years, than realize too late that you didn’t save enough. Think about how much you’ll likely spend on different necessities during retirement. Some of your expenses will probably go down, but others will go up. Add about 3 percent per year for inflation.” Mike Scott, Independent Bank Senior Mortgage Loan Originator“One thing to keep in mind is what the expected level of retirement income is, relative to the individual’s current income. If they expect to have $50,000 per year from retirement income sources, but are currently making $80,000 per year, then it makes more sense to make contributions to a traditional IRA or 401K, thus reducing the current tax burden since they are in a higher tax bracket. If they expect the retirement income level to be in an upper income bracket, it may behoove them to contribute to a ROTH IRA or a ROTH 401K rather than a traditional IRA or 401K, particularly since they would then be locked into the current tax levels. Given the deficit that the government is running on, I expect our tax obligations to rise over the next decade or two. Given that the current three upper level tax brackets are based on income of $160,725 (single), $321,450 (married) and go up from there, the decision would need to be made based on those levels, which are always going to be subject to change. At those levels, the tax rate jumps from 24 percent to 32 percent, then rises from there to 37 percent for income levels of $510,300 for an individual and $612,350 for a married couple.” Consider diversifying for tax purposes Brandon Renfro, Ph.D.“Young people can really set themselves up for success by thinking about retirement taxes ahead of time. You’ll probably receive retirement income from a few different sources, so think about how those integrate with each other. For example, a larger portion of your Social Security benefit is taxable as your combined income increases. You can lower your total tax bill by planning ahead to make that combined income figure lower without necessarily lowering your actual income, since not all income counts in the combined income calculation.” Alex Caswell, CFA, CFP ®, Wealth Planner at RHS Financial“Young people should consider having three types of investment accounts. They should have a Roth IRA or 401k, a regular IRA, and a taxable account. Just like diversifying investments, someone should diversify their tax structures. Just like we don't know what will happen to the stock market, we don't know what will happen to the tax code. Right now capital gain tax is the lowest it has been historically, but that won't always hold true. By having multiple types of accounts, a person retiring can have the flexibility to navigate the tax code.” Patrick Ford, CPWA ® Director of Wealth Management of Brown Wealth Management“Having a taxable and a tax-free source of funds in retirement can greatly help a retiree make the most of our progressive tax system. In retirement, you might withdraw from your traditional IRA until you find yourself close to a higher tax bracket. Any additional income you need in that particular year could be withdrawn, tax-free, from your Roth IRA.” Jason B. Ball, Ball Comprehensive Planning, LLC Founder“As the years have gone on, I tend to prefer a tax bouquet that being some in tax-deferred accounts, some in already taxed accounts like a Roth IRA, and some in non-taxable accounts. This gives some tax flexibility if changes are made to the tax code.” Plan for health care expenses Josh Zimmelman, Westwood Tax & Consulting Owner“Get a head start on Medicare and Social Security. There are a lot of complicated rules so make sure you understand everything you need to know before you need it. Apply for social security and set up your pensions and retirement withdrawals. (And set aside some cash reserves in case you hit any unexpected delays.)” Shobin Uralil, Cofounder and COO of Lively"There are many demographics, particularly young working Americans, where a high-deductible health plan could make sense. For example, if you rarely go to the doctor, why pay high premiums for a service you may not use. Rather, take the savings and put it into an HSA. Because of this, we’re seeing growth in HSAs as a vehicle not only for health savings in the near term, but for anticipated health costs in retirement as well. These new contribution limits will help increase the value of HSAs to individuals and families throughout their lives. We’d encourage users to max out their contributions throughout the year to not only take advantage of the tax savings, but also to ensure that they are putting themselves in a position to better afford their future healthcare expenses. We also encourage employers to do their part by extending HSA contributions as a benefit to their employees.” Make decisions based on current finances and long-term financial goals Jason B. Ball, Founder of Ball Comprehensive Planning, LLC“The goal is typically to lower the marginal tax rate that you pay on your taxes. What I mean by this is that on each next dollar you earn, there is a marginal tax rate that is applied. Your goal is to reduce this marginal tax rate and to have your overall effective tax rate be lower. So, it really is a decision to either accelerate to pay taxes now or decelerate to pay taxes in the future. There is software to help strategize individual tax situations and we strongly recommend working with a CFP(R) or CPA in this area do to some of the complexities.” Josh Zimmelman, Westwood Tax & Consulting Owner“Make sure you’re contributing as much as you can afford to your retirement savings account/s. After age 50, you can make additional 'catch-up' contributions to your retirement savings. If you have multiple accounts, considering consolidating all your 401(k) and IRA plans as you get closer to retirement. Pay off your debt before you retire. Try to get rid of any outstanding debts as quickly as possible, so they don’t drain your retirement funds. Think about getting a part-time job. Retirement doesn’t mean you have to completely stop working. It might be an opportunity to shift to a low stress part time gig. Starting a brand new career can be difficult at an advanced but there are a lot of opportunities for project-based jobs where you can use your current experience in a new way.” Check out Best Company's Retirement Taxes Guide for more information and tips.
Retirement is the dream. It’s about being financially independent, finishing work, and having more free time to spend with friends and family. Unfortunately, taxes don’t go away. “Many recent retirees are surprised to owe income tax time, because they are frequently not withholding on major sources of retirement income such as IRA distributions and Social Security benefits. You have to make withholding elections yourselves, with your planner or brokerage firm holding your IRA account, and by filling out Form W4-V to withhold from social security benefits. The typical working taxpayer has withholding taken care of by their employer, so they don’t expect to have to do this on their own come retirement,” says Bennett Stein, CPA and Investment Advisor Representative with Arbor Wealth Management, LLC. Since you’ll be taking on a more active role in making sure your taxes are paid, it’s important to understand how retirement taxes work. It’s also worthwhile to understand retirement taxes when you’re young because it can help inform how you prepare your finances for retirement. What taxes do you pay in retirement? While you no longer have to pay FICA taxes, which are taxes withheld for Medicare and Social Security, you still have to pay income taxes on all of your income. The only exceptions are Health Savings Accounts and Roth IRAs. Health Savings Accounts remain tax-free as long as the funds are used for medical expenses. However, the penalty for using the funds for other expenses goes away at age 65. Withdrawals for other expenses are considered taxable income. Roth IRAs are tax-free in retirement because the funds in those accounts are taxed before going into the account. Everything else — investment income, retirement account withdrawals, pensions, annuities, and even Social Security Benefits — are taxed. And, you still have to pay income taxes if you live abroad. “America is one of two countries that enforces citizen-based taxation, so retirees will still need to submit the annual 1040s while sipping on cocktails on an island. Many retirees are unaware of this filing retirement. Retirees should look to see the Tax Treaty between their new home and the U.S. to see which country has the taxing rights on their U.S. Social Security benefits and other foreign pension income. If the tax treaty states that the U.S. still holds taxing rights, then overseas retirees need to plan their money wisely, since they most likely be giving a portion of it back to the IRS every April 15th,” says Nathalie Goldstein, CEO of MyExpatTaxes. How much tax do you pay in retirement? Income tax during retirement is not just based on the total amount of income you withdraw each year. Instead, each kind of retirement income is taxed differently. State taxes on retirement income also vary state to state. For more information on how income tax is applied in your state, check out this state-by-state guide. “Once you hit the retirement age the heavily taxed monthly salary stops trickling in but you get to unlock several retirement income plans. These include savings, pensions, and investments and they too are taxed — but at more friendly rates. The rates are primarily dependent on the income source and the best approach to paying the taxes starts with understanding the different classification of your retirement incomes. Go through the IRA guidelines to check whether your incomes are taxable, partially-taxable, or tax-free and separate them accordingly as well as penalties and fines on early withdrawals,” says Edith Muthoni, Chief Editor of learnbonds.com. Understanding how each stream of retirement income is taxed will help you better manage your retirement funds to make them last and get the most out of your funds. How is investment income taxed? Investment income is also taxed differently depending on how the income is classified and your total taxable income. For some income levels, qualified dividends are not taxed. At others, qualified dividends have a tax rate of 15 or 20 percent. Qualified dividends are for funds and fund shares that have been owned by you for over 60 days. Non-qualified dividends are taxed based on your income tax bracket’s normal rate. People earn capital gains when the value of their investments rises. Capital gains are only taxable when they are realized from a sale. The taxes due on capital gains vary depending on how much long you’ve had the investment. If you’ve had the investment for less than one year, the capital gains are subject to your usual income tax rate. These are called short-term capital gains. If you’ve had an investment longer, the profits are called long-term capital gains. Long-term capital gains are taxed the same way as qualified dividends. Interest is also taxed. Interest comes from bonds and some kinds of bank accounts, like savings accounts. All interest, even from mutual funds and bonds, is taxed as income. How are retirement accounts taxed? Taxation of retirement accounts works differently. 401(k)s and traditional IRAs give people immediate tax breaks for contributing to their retirement account. The funds can grow tax deferred indefinitely. When withdrawals are made, the taxes must be paid at this point. These distributions are taxed as income. In contrast, Roth IRAs do not offer immediate tax breaks on income. Instead, people pay taxes on the money they add to their Roth IRA. When they withdraw money later, they do not have to pay taxes on that income as long as the account is five years or older or a special exemption applies. Penalties and taxes apply for early withdrawals from retirement accounts. Early withdrawals occur before age 59 and a half. For Roth IRAs, the penalties and taxes depend on the amount you withdraw. Expert tips for planning retirement account distributions Tracey Lawrence, Founder of Grand Family Planning, LLC“Many people facing retirement don’t realize that when they turn 70.5, they MUST start taking Required Minimum Distributions from their retirement accounts whether they need to or not. Why? Because they have been growing their money, tax deferred. The IRS wants to start taking their cut. If they DON’T start receiving the RMDs on time, the retiree will be penalized 50 percent. So you might think, okay, I’ll just take the RMD at 70.5 and avoid the penalty. Here’s what most people don’t realize: the amount of the RMD may have a significant impact on their income. Their income has an impact on the premium they will pay on Medicare. How can they control how all of these interdependent mechanisms impact the cost of living in retirement? By working with professionals who understand how all of this works, who will look at the finances holistically BEFORE they turn 70.5. Many professionals are unaware of these issues, choosing to focus only on growing assets. While that may be desirable when we’re younger, understanding how to best distribute earnings later in life can keep people comfortable longer. And with people living longer, and health care costs continuing to rise, that’s extremely important.” Edith Muthoni, Chief Editor of learnbonds.com“You can also lower the impact of taxes on your retirement incomes by adhering to income access and withdrawal guidelines. For instance, avoid withdrawing from your 401K after changing jobs or before hitting 59.5 years as these attract early withdrawal penalties. Similarly, withdraw from both your IRA and 401K accounts before 70.5 years to avoid higher interest plus the possibility of losing up to 50 percent of these savings.” How are Health Savings Accounts (HSAs) taxed? HSAs are not taxed as long as the funds are used for medical expenses. In terms of retirement, HSAs start working like Roth IRAs at age 65. However, if the funds in the HSA are used for health expenses, they remain tax-free. How are pensions taxed? Pensions are similar to 401(k) and traditional IRA retirement accounts. The funds go into the accounts tax-deferred, so taxes are paid when distributions are made. Pension distributions are taxed as normal income. How are annuities taxed? With annuities, the value of the original principal is usually not taxable because they’re often bought after taxes. However, all the interest and value that accrues over time is taxed as income. If the annuity is purchased with tax-deferred dollars, the full annuity is taxed as income. How are Social Security benefits taxed? The taxes you pay on Social Security benefits are determined based on how much other income you receive. In some cases, Social Security is tax-free. However, most people will have to pay tax on 50 or 85 percent of their Social Security benefits. Experts weigh in: What's the best way to pay taxes in retirement? Denise J. Nostrom, ChFC, CLU Financial Advisor at Diversified Financial Solutions“Paying taxes on retirement income really depends on the type of income you are receiving. For most people, it makes sense to withhold federal and state taxes (if applicable) right from the income source. These income sources can include, but are not limited to the following: Social Security, Pension and Traditional IRAs. Before retirement, when you received your paycheck from your job, you had federal, and state taxes withheld plus Social Security, Medicare and perhaps other items withheld from your gross income. You should follow this same system in retirement.” Nancy D. Butler, CFP ® , CDFA ™, CLTC and owner of Above All Else, Success in Life and Business ®“I strongly suggest all retirees do not pay quarterly income tax payments. One of the main concerns we all have as we age is how we can maintain our independence and happiness as long as possible. One way to assist with that is how you manage paying your income taxes. If you are paying quarterly estimated federal and/or state income taxes, it may not be necessary. As we age, remembering how much to pay, when to pay it, where to send payment, and how much postage costs is an issue you most likely do not have to deal with. Contact your tax advisor and have him or her calculate how much to have withheld from your pension, Social Security, or qualified plan assets so you no longer have to file quarterly estimated income tax returns. Each year when you have your income taxes prepared, your tax advisor will need to let you know if you need to adjust the amount for the coming year. This will enable you to have your taxes paid automatically to better assure they are paid in the correct amounts and on time. This will be one less thing you will have to address.” Patrick Ford, CPWA ® Director of Wealth Management of Brown Wealth Management“Other retirement income sources can get a bit tricky. Withholdings might not be appropriate, so you may need to pay estimated taxes to the IRS on a quarterly basis. A non-retirement account may contain a variety of securities which can generate capital gains, losses, dividends, tax-free income, taxable income, etc. Because withdrawals from these accounts are not taxed as income, retirees with non-retirement accounts typically estimate their tax bill and make payments on a quarterly basis to the IRS. It’s the activity within these accounts that matters for tax purposes.”
Guest Post by Michael Law Most people understand that filing their personal tax returns by April 15 is non-negotiable. However, according to the IRS, each year around 7 million taxpayers do not file their taxes. There are specific consequences to take into account when contemplating not filing. Key Takeaway: Understand your responsibilities. File your taxes as soon as possible. Find out if you fit the requirements for the IRS’s first-time abatement penalty waiver (FTA). Pay what you owe, if you can. If you don't file at all Beyond the issue of wondering when unfiled returns or unpaid taxes are going to catch up with you, there are some unexpected implications for not paying taxes, including Hampering your ability to qualify for a home loan. Since one of the lender procedures is to verify your previous years tax returns, it is impossible for the lender to verify a non-filed return. Missing out on credits or refunds of taxes withheld. There were almost $1.4 billion in unclaimed tax refunds, due to 1.2 million taxpayers who did not file their 2015 tax returns. That is an average of around $1,000 in unclaimed refund per unfiled return forever lost. As there is a three-year deadline to claim the refund, once April 15, 2020 arrives, the next group of taxpayers who did not claim their refunds from 2016 are out of luck. Being more likely to believe the IRS phone scams about a sheriff sent to arrest you for not paying your taxes, since you know you have not filed. For those who continually choose not to file their tax return and hence do not pay their taxes owed, the IRS can do the following: File a notice of a federal tax lien (a claim to your property) Seize your property including bank account balances Make you forfeit your federal or state refunds File charges against you for tax evasion Revoke your passport If you don’t file on time If you don't file on time, there are a number of implications that taxpayers might not be aware of: Difficulties qualifying for financial aid for children attending college. In the hurry of filing late, taxpayers may lose or miss important. information, which can for example result in overpaying due to missed deductions. Rushed filings can also generate errors that may lead to IRS or state notices. Late filing penalties and interest based on the initial balance due will build up. The taxpayer will end up owing a lot more than if they had filed and paid any owed taxes on time. If you are reading this now, and still have not filed your taxes, here is what you should do: 1. File your taxes as soon as possible. 2. If you owe taxes to the IRS, find out if you fit the requirements for the IRS’s first-time abatement penalty waiver (FTA). This waiver allows a first-time noncompliant taxpayer to request the removal of certain penalties for a single tax period. An FTA can be obtained for a failure-to-file, failure-to-pay, or failure-to-deposit penalty. To qualify, you must not have been assessed any other penalties on the same type of tax return within the past three years and must be in compliance with all filing and payment requirements. 3. Pay what you owe, if you can. 4. If you cannot pay, contact the IRS to discuss the following options: Short-term extension to pay An installment agreement An offer-in-compromise A temporary delay in collection by reporting your account is currently not collectible until you are able to pay Note that the IRS cannot waive interest charges which accrue on unpaid tax bills. The bottom line If you are considering not filing your taxes because you can’t afford payment, there are better ways to address this issue than not filing. If you don’t have the information you need to file or simply cannot make the April 15 deadline, be sure to file an extension ahead of April 15 to extend your time to file by six months. Michael Law earned a Master’s degree in taxation from Golden Gate University and has more than 20 years of experience in accounting and tax. Currently, he works as a CPA Subject Matter Expert Manager at Canopy, leading a team to develop world-class tax software. Prior to Canopy, he served as the Vice President of Tax Operations for the Salt Lake City branch of Goldman Sachs.
Many taxpayers look forward to tax season because of tax returns. While getting a large sum of money all at once is exciting, it also means that you overpaid your taxes. On the other hand, getting a nice check from the government feels way better than owing taxes. If you owe too much, you could be fined or need to seek tax relief. The big question: What determines the size of your tax return?The answer: Tax withholdings. Understanding tax withholdings and setting them carefully will help ensure that you’re not overpaying or underpaying.This article will answer the following questions people have about tax withholdings: What is tax withholding? What is federal tax withholding? What is Medicare tax withholding? What is Social Security tax withholding? What is state tax withholding? How do you calculate taxes from your paycheck? Should I change my withholding? How do I change my withholding? What is tax withholding? Employers generally take payroll or income taxes out of their employees’ pay before giving employees their paycheck. If you want to know how much you’re paying in taxes, you can take a look at your pay stub and W4s. If you’re self-employed or a contract worker, you’re responsible for paying your own taxes. What is federal tax withholding? The federal tax withholding is determined based on how much you make. These percentages are consistent across the U.S. but are subject to change. The IRS publishes withholding charts for every tax year that detail what people with different W-4 allowances, tax filing statuses, and income levels will owe in taxes. This information is especially useful for employers and self-employed individuals. The federal tax withholding also includes Medicare and Social Security taxes. What is Medicare tax withholding? Unlike the payroll and income tax rates, the Medicare tax percentage rates do not vary based on the amount earned. The tax rate is 1.45 percent for people earning up to $200,000 annually. If you make more, an additional .9 percent tax is applied. Employers also pay a 1.45 percent Medicare tax.Medicare taxes go to fund Medicare — medical, hospital, and prescription drug insurance for Americans over age 65. What is Social Security tax withholding? Social Security taxes are also consistent across the United States and income levels. It is 6.2 percent for individuals. Employers also pay 6.2 percent in Social Security taxes These funds are dispersed to qualified American retirees, individuals receiving disability, and to surviving minors and spouses of deceased workers. What is state tax withholding? Each state has its own tax laws, so the state tax withholding varies state to state. Some states do not tax income. You can find information about your state’s taxes and tax withholdings online. The department that manages state taxes has a different name in each state. For example, the New York State Department of Taxation and Finance manages taxes in New York, and the Missouri Department of Revenue manages taxes in Missouri. Once you know the department name in your state, you can find good information about state tax withholdings from the official webpage.Depending on your community’s local laws, you may also have to pay additional taxes. How do you calculate taxes from your paycheck? Tax withholdings vary based on how much you make. If your employer takes taxes out of your paycheck, the easiest way to see how much you’re paying in taxes is to look at your pay stubs. For the annual amounts, multiply the tax deductions by the number of pay periods in a year.“You want to make sure you have the right amount of tax withheld to set yourself up for a successful tax season. If you withhold too little, you might find yourself owing money in taxes next April. If you withhold too much, you might get a big refund but you’ll likely be short on cash all year,” says Joshua Zimmelman, President of Westwood Tax and Consulting, LLC.If you’d like to do the math yourself to make sure that your withholding is correct, here’s the breakdown: Know how much you make annually.Your annual earnings affect what tax bracket you fall under, which determines the amount you pay in taxes. If you don’t know that number specifically, it’s important to make a good estimate to make sure that you’re paying the right amount of taxes. Look at the tax withholding charts.The IRS publishes the amount each earning bracket will need to pay in taxes annually. The charts are broken down by filing status and number of dependents. Alternatively, you can use the IRS withholding calculator to make sure your withholdings are correct.“The IRS website has a withholding calculator to help you make sure you’ve got the correct amount of tax withheld from your paychecks. You’ll want to have last year’s tax return and your recent pay stubs handy.” says Zimmelman. How often should I check my withholding? Fully understanding your finances includes understanding what you’re paying in taxes.“It never hurts to see if your withholdings are on track. A big refund means you’ve over-withheld, effectively giving the government an interest free loan. Owing money could mean you face added costs in penalties and interest. If you check your withholding throughout the year, you can take control of the situation and your money,” says Ann Brookes, LL.M. in taxation and tax attorney.While taking the time to check your withholding can sometimes be tricky to prioritize and work into a busy schedule, in some situations it’s an especially good idea to double check.Brookes says, “I encourage taxpayers to check their withholding when there is a job change, extra income such as a lottery win, or rental income on a cottage, sale of stock, or distribution from an IRA. Withholding on your main paycheck doesn’t account for extra income, and it’s important to consider the big picture. Taxpayers who file jointly and have both self-employment income and W-2 income might consider increasing withholding on the paycheck to alleviate or eliminate the estimated tax payment amounts on the self-employment side. In all cases, I encourage taxpayers to do a withholding check in the fall. If it turns out they have over-withheld, they have the chance to reduce or eliminate withholding for the remainder of the year. This means a bigger paycheck at the holidays. Just remember to switch it back in January.” Should I change my withholding? Before you decide to change your withholding, think about whether or not you need to.“If you’ve experienced a major life change (marriage, divorce, new child, new home, new job, or anything else that could affect your tax liability) you should examine your withholding and see if it needs to be adjusted. If you haven’t already adjusted your withholding after the new changes under the Tax Act then you should definitely get informed about how the tax act changes your taxes,” advises Zimmelman.In some cases, adjusting your withholding may be strategic.“If you often get a large refund, considering adjusting your withholding to give you more money per paycheck. But don’t spend that extra cash, put it in an account where it can earn interest. You might not end up with a big refund at the end of the year, but you’ll have grown your savings. Worst case scenario, you can use some of those extra savings to pay an unexpected tax bill if your calculations were slightly off.” Zimmelman says.With the effects of the Tax Cuts and Jobs Act, it’s worth taking a second look at your withholdings.“A lot of taxpayers were surprised by a smaller refund or an unexpected tax bill this year. This doesn’t mean their taxes went up; it just means that they saw the benefits of the Tax Act during the year, through larger monthly paychecks. The tax withholding tables were adjusted under the new tax act, but not everyone adjusted their withholding appropriately. Many people weren’t withholding enough during the year so they were left coming out short once tax season came,” says Zimmelman. How do I change my withholding? If you want to change your withholding, you need to submit a new W-4 to your employer. If you’re making adjustments to state and federal tax withholdings, you may need to submit a state W-4 and a federal W-4. The federal W-4 takes information about yourself, the allowances you claim, and your employer. The form also includes worksheets to help you determine the number of allowances and kinds of adjustments you should make. Some states use the federal form to determine state income withholdings. Other states have their own forms. Your employer should be able to give you information on what forms they need to adjust your state withholdings. If you’d like to see what forms are necessary in your state, here’s a helpful guide.Be careful when adjusting your withholdings: you don’t want to underpay your taxes and receive penalties.“The simplest rule of thumb is using the IRS’ ‘safe harbor’ rule to avoid any underpayment penalties. You won’t owe any penalty if either of the following applies: You owe less than $1,000 If you pay 100% of your previous year’s tax liability through regular withholding or estimated taxes. (110% if your Adjusted Gross Income, “AGI”, is over $150,000)(Your 2018 AGI can be found on line 7 of your 2018 Form 1040.)” advises Ben Watson, CPA and Virtual CFO of DollarSprout. Setting your tax withholdings well will ensure that you don’t overpay or underpay your taxes. It will help ensure that you have access to all of your money throughout the year and don’t owe the government any taxes when you file.
1. Figuring out how to use online tax preparation software via GIPHY 2. Beefing up your tax code knowledge via GIPHY 3. Realizing that the tax code has really changed via GIPHY 4. Deciding to hire an accountant to do your taxes for you via GIPHY 5. Realizing you're missing a document via GIPHY 6. Looking for the lost document via GIPHY 7. Finding the document via GIPHY 8. Finishing the federal return via GIPHY 9. Not so fast. . . you still have to do your state taxes via GIPHY 10. Filing in more than one state via GIPHY 11. Finding out you have a large return coming your way via GIPHY 12. Finding out you owe taxes via GIPHY via GIPHY 13. Finding out you owe more than you can pay right now via GIPHY via GIPHY 14. Finally filing your return via GIPHY 15. Paying your tax debt via GIPHY 16. Getting a nice tax return check via GIPHY 17. Ignoring tax debt via GIPHY via GIPHY 18. Ignoring the IRS via GIPHY 19. Getting help with your tax debt and the IRS via GIPHY via GIPHY 20. When you resolve your tax debt via GIPHY Need help resolving tax debt? View best tax relief companies.
Tax Day (April 15th) is fast approaching. If you’re a procrastinator, don’t have all of your documents ready, or won’t have time to file your taxes by the deadline, a tax extension can give you more time to get everything ready.“If there were ever a year to consider extending, this would be it. The complexities associated with the Tax Cuts and Jobs Act are impacting many tax filings, and we have found that there are still many unanswered questions. Guidance from the Treasury is still coming out and more is expected. In some cases, taxpayers are required to make decisions about their filings, and they may not have all the information that they need to make those decisions. In other cases, where there is adequate guidance, we believe that taxpayers may benefit from just taking additional time to consider the new law, its implications, and how best to comply,” says Douglas Farrington, CPA, Marcum, LLP Office Managing Partner. According to most of the experts we spoke to, the most important thing to keep in mind with tax extensions is that it is only an extension for filing your taxes, not paying them.Read on to hear what experts have to say about the following tax extension topics: Tax extension basics Advantages and disadvantages of a tax extension Federal tax extension tips for individuals and businesses State tax extensions Tax extension basics Jeffrey A. Schneider: Enrolled Agent, Certified Tax Resolution Specialist, Advanced Crypto Tax Expert, National Tax Practice Institute Graduate Fellow “An extension protects taxpayers from being charged the late filing penalty which can be, for individuals, 5 percent per month of the tax due. It should be noted, though not a good practice, that if the individual taxpayer will not owe tax with the return, an extension does not have to be filed as penalties and interest are assessed on what is owed with the return. However, if the taxpayer miscalculates where they think they will get a refund and then owe, not filing the extension can cause them penalties and interest.” Andrew Schrage: MoneyCrashers CEO “The IRS allows for a 6-month extension on filing taxes. However, this does not apply to paying taxes, only the actual paperwork. This means you still need to pay an estimated amount of how much you owe by the April deadline in order to avoid late penalties. Anyone can apply for an extension. You don't need to provide a reason for requesting one. The IRS won't ask why. They will only contact you if your extension request is denied. If you don't hear from them, you can assume it was approved. You can file for an extension via mail, electronically on the IRS website, or by paying the approximate amount you owe and sending in your tax return later.” Advantages and disadvantages of a tax extension Ines Zemelman: EA for Taxes for Expats “There are no disadvantages for the taxpayer. The IRS does not examine the taxpayer more if the return is filed with an extension.”Douglas Farrington: CPA, Marcum, LLP Office Managing Partner “Unfortunately, many people perceive that extending increases the risk of audit and are therefore opposed to it. Honestly, in all my years of practice, I have never known an audit to occur as the result of filing an extension. I do not believe that there is any downside to requesting an extension, particularly in a year when so much has changed. Taxpayers should make sure that they take the time needed to properly assess the new law and the impact it has on them.”Jacob Dayan: CEO of Community Tax and Finance Pal “From illness to financial hardship, a taxpayer may file an extension if they feel they need to for any reason. Taxpayers may submit an IRS Tax Form 4868 – Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Taxpayers may submit the form themselves or through a professional before the last day to file taxes, which will extend the time to file for six months. It’s important to note that this is an extension to file the taxes and not an extension to pay any due taxes. Meaning if you owe any taxes pay them by the due date, or you’ll face penalties and fines. State extensions vary by state. Some offer automatic extensions, while others require you to request the extension. They generally offer the same benefits of federal tax extensions.”Joshua Zimmelman: Westwood Tax and Consulting, LLC President “Filing for an extension protects taxpayers by giving them more time to make sure their tax return is correct and make sure that they understand any new tax laws. Providing incorrect information on your tax return could result in fines, penalties, or an audit so if you’re not sure about the details, it’s better to file for an extension. An extension also gives taxpayers an opportunity to take advantage of retroactive tax laws changes that take place after April. Of course, they could always file an amendment after the fact if any law changes apply to them after they’ve already filed their return, but an extension helps them avoid the extra trouble (and expense) of doing so.” Individual federal tax extension tips Riley Adams: CPA, Senior Financial Analyst and blogger for youngandtheinvested.com “The IRS allows all taxpayers to file an extension with Form 4868. Doing so allows for up to six months of extra time to file your completed return. This year, that 6-month extension due date falls on October 15. One major caveat of filing an extension, however, is you must still pay the estimated amount of taxes due. Even if you’re granted the extension, Uncle Sam wants his money. There’s a bit of wiggle room in the rules, however. If the taxpayer remits 90 percent or more of the taxes owed with the extension request, the IRS will likely waive the failure-to-file penalty. This is assuming the taxpayer pays any remaining balance by the extension due date, of course. Also, when filing an extension request, you should also pursue filing an Installment Agreement Request. This allows the taxpayer to receive an additional 120 days to pay the IRS in full. If the taxpayer pursues this route, it also lowers the associated interest charges and fees for paying your tax bill late. Under this arrangement, taxpayers can make monthly payments for as low as $25 and extend repayment for up to 72 months.”Jeffrey A. Schneider: Enrolled Agent, Certified Tax Resolution Specialist, Advanced Crypto Tax Expert, National Tax Practice Institute Graduate Fellow “If you are an individual (versus partnership, corporations, etc.), your extension has to be filed by April 15th of each year. However, if you live in Washington, D.C., that date is extended one day as the 15th this year is Emancipation Day, a holiday in our nation’s capital. If you live outside of the country, your extension is due June 15th. You file the extension, electronically or by mail (hopefully via certified mail) using form 4868. Taxpayers have to remember, that the extension is to extend the filing due date, not the paying of taxes. If the taxpayer(s) believe that they will owe taxes with the return when filed, they should pay their best estimate with the extension in order to avoid at least minimize late paying penalties and interest. Most, if not all, professional tax preparers can take care of this for the taxpayer, but of course taxpayers can do it themselves.” Business federal tax extensions Jeffrey A. Schneider: Enrolled Agent, Certified Tax Resolution Specialist, Advanced Crypto Tax Expert, National Tax Practice Institute Graduate Fellow “If you are taxed as a “calendar year” (meaning your tax year ends on December 31st) business (partnership, S-corp), the extensions are due by March 15th. If you are a trust or C-corp your extensions are due April 15th unless you have a different fiscal year end than calendar. Then, generally, extension is due by the 15th day of the fourth month after the close of your year. Business extensions, like the individual extension, can be filed electronically by mail. They need to use form 7004 to file their extension. For C-corporations that may owe tax, the same rule applies to them as individuals. They should pay their best estimate with the extension to avoid or minimize late paying penalties and interest. Most, if not all, professional tax preparers can take care of this for the taxpayer, but of course taxpayers can do it themselves. Generally, individual, S-corp and partnership extensions are for six months. Corporations are for five. Calendar year not for profits returns are due May 15th and their extension is for four months, with another two allowed with a subsequent filing.” Scott Roelofs: RCG Valuation & Monetization Owner “As the tax deadline approaches, the number of options available to your business falls quickly. One option that the taxpayer still has is filing an extension for your company. Many people know this option can buy you some time, but it may actually save your business money. Not only does filing an extension give the taxpayer an extra six months of time, it also gives the taxpayer an extra six months when looking backwards at previous years. There is no doubt that the Tax Act of 2017 has benefited small businesses, especially ones investing in the United States. One thing it did fall short of was simplifying the tax code. If anything, they are a little bit more complex. Many small businesses may not take advantage of all the new deductions or credits available to them. With that being the case, many companies may find themselves filing amended returns somewhere down the line. This is where the extension can come in handy. Let’s look at an example. In May of 2018, you did an analysis of your business and discover that your business has qualified Research and Development (R&D) expenses of $1 million per year dating back to 2014. Your business would be able to claim those expenses in the form of a credit, approximately $70,000, by filing amended returns for each of the previous three years. This is where the extension can save your business money. If the business files their taxes on time with no extension, the last year the business could amend would be 2016, as the May 2018 analysis is more than three years past the April 15, 2015 filing. If however the business had filed an extension, the business would be able to file amended returns for all years: 2015, 2016 and 2017. In this case, the extra six months from the extension would have allowed the business to claim the $70,000 credit for 2015. Imagine having a conversation about forfeiting $70,000 with your tax professional three years from now. It’s our experience that business owners prefer to avoid such conversations, so planning for the future now may be warranted. My example may seem like an extreme case, but given the numerous changes in the tax code and the amount of time tax professionals have been able to dedicate to mastering those changes, it is possible that something could be missed. As a form of inexpensive insurance, it might be advisable to give your business the extra time it may need to claim properly earned deductions and/or credits.” State tax extensions Joshua Zimmelman: Westwood Tax and Consulting, LLC President “Each state has its own requirements for filing for a state tax extension. In some states it will be automatic when you file for your federal extension. Other states make you file a separate state-specific form. Some states don’t require you to file a tax return at all, so an extension wouldn’t be necessary.”
Debt, taxes, and everyday expenses can obliterate your paycheck. As you get older, you accumulate medical expenses, possible tax debt, and other unforeseen debts. You have kids and, though they do bring you joy, they also bring additional expenses.When you are surrounded by financial burdens, you have two choices: you can either cut costs or increase your income. Fortunately, this article will show you how to make more money by impressing your boss and earning a promotion, which is the quickest way to drastically increase your income. Basic principles of earning a promotion Michael D. Brown, Career Consultant and Director at Fresh Passion Institute puts the climb up the ladder into perspective: “Career growth is all about professional differentiation. This means you stepping out of the queue, differentiating yourself from the ordinary. No one is honestly going to admire you if you have precisely the same characteristics as them — if you have nothing more to offer than they do.”Standing out always has its own dangers. By extending yourself, being unique, and drawing attention, you invite scrutiny and criticism — this is to be expected. Your superiors will begin to look deeper into your work ethic and performance. If your superiors like what they see, they’ll consider you for a promotion.It’s vital that both your work ethic and job performance are top notch compared to your co-workers before you bring unique ideas to the attention of your superiors.Ask yourself these questions: What type of employee does my boss need? Which employee attributes does my boss value most? What type of employee would get a promotion? What type of employee am I going to be every day? What do I need to do each day to impress my boss? What can I say to my boss that will help my cause? Answering these questions will help you create a goal specific to what your boss is looking for in an excellent employee.Differentiation is a lot easier when you have help. I’ve asked career experts to provide tips and proven strategies to help you stand out from the crowd and catch the eye of your boss.If you fully incorporate the ideas given by these business executives, career experts, and professionals, you will impress your boss, earn promotions, and make more money in the long run. 1. Document your successes obsessively Will Craig, Managing Director of LeaseFetcher“If you want a promotion at work, you're going to have to prove to your boss why you actually deserve one. Reeling off a list of your past achievements will do just that. A lot of people can have trouble coming up with a list of their successes on the spot though, so it's much easier if you keep a comprehensive list of every single achievement you make that you can refer to when it comes to asking your boss for a promotion, or for dropping subtle hints. It doesn't have to be anything too complicated either – literally just a pad of A4 paper where you list your achievements, as and when they happen.” 2. Actively post about your job on social media Son Ngo, Founder of Tankscrib“Post a good picture of your company on social media. An employee at my previous company once put a cute picture of him and some co-workers under a huge Christmas tree at the corporation's lounge on Facebook. The caption was "This is what family is all about!". It caused a small stir among his circle (his most liked picture!), and days later my record showed that he got a significant raise. I want to stress that the employee was doing great, and he would be likely to get that promotion had he not posted the picture. However, that picture surely gave him a much better image with his manager and within the company.” 3. Show reliability through consistent attendance Deborah Sweeney, CEO of MyCorporation.com“Show consistent attendance. I know that on the surface this does not sound like a 'unique' strategy, but it really does set you apart in a positive manner. Showing up and being on time in the workplace tends to tie in with other consistency traits, such as meeting deadlines or reaching time-sensitive goals.” 4. Accept the responsibilities before the title Altimese Nichole, Founder of Altimese Nichole Enterprise“[Don’t] be afraid to take on the responsibility before the title. Rise to the occasion and live your life as if the title is already yours. It's a little of the law of attraction and a lot of self confidence, in spite of fear.” 5. Develop strong relationships with clients Airto Zamorano, Founder and CEO of Numana SEO“Develop unbreakable relationships with your clients. It's hard to find good people in general, but it is especially hard to replace a key person on your team that clients depend upon.” 6. Learn to innovate Daniel Shen, Founder of Soqqle“Be innovative but not out of scope. Play in the lane and [win] the race but don't jump into other people’s lanes. Bring bosses and managers into innovation plans. Before that, learn how to innovate.” 7. Be strange and unique Michael D. Brown, Career Consultant and Director at Fresh Passion Institute“Why should your boss like you when you give him just what every other person in the office can offer? Why should your agitation for promotion be honored when there is no grain of difference between you and others in your workplace?It is becoming increasingly obvious that being “nice” and “okay” takes you through your career (in terms of career growth) at bicycle speed while being “strange” and “unique” takes you through at jet speed.You can be quiet but YOUR PERSONAL BRAND LOUDLY SCREAMS YOUR PLAUDITS.” 8. Back your performance with data Solomon King, CEO of Glacier Wellness“If you want to win that promotion you have to show that you've earned it. That being the case, be sure to bring the data which effectively shows how you've contributed to company growth and how you've personally progressed over time. Besides communicating your value to the business, this also shows your hunger for growth and ability to track and analyze data.” 9. Get media coverage for your company or product Nate Masterson, CFO of Maple Holistics“Getting media coverage for your company’s products or a new project the company wants to promote is a great way to garner attention for the business and accolades for yourself. Think outside of the box when seeking a promotion so that you set yourself apart from everyone else at the company.” 10. Ask key questions in interviews Dr. Elliott B. Jaffa, Behavioral and Management Psychologist“As a behavioral and management psychologist, a promotion begins at the job interview.a. When the hiring manager (not the HR person) asks, "Do you have any questions for me?" I highly recommend asking, "When would I receive my first performance review?" The typical response is, Annually. Ask if your performance can be reviewed after six months to make sure that your performance and work ethic (two very important words to use) are up to and hopefully exceeding the company's expectations.b. Assess if there are any skills you would like to learn or further develop beyond the scope of your current duties. Bring one or two to the boss's attention and say, ‘I feel I could become more valuable to you (key word) and the company if I could be cross-trained on. . . ’c. When given an assignment always ask what metrics (key word) are noted and captured to measure success. Further explain “This is important to me to do produce quality work.” 11. Map the power dynamics in your workplace Will Craig, Managing Director of LeaseFetcher“There's no denying that getting a promotion involves catching the eye of your manager or boss but you need to make sure that you're actually attracting the attention of the person who has the power to make that decision. That's where mapping your workplace comes in. Workplace mapping is when you think strategically about where the power resides in your workplace and you note the people who can effect change there. This can help you come up with a much more effective strategy for getting that promotion, rather than wasting time trying to get the attention of people who don't have the power to actually promote you — as much as they want to.” 12. Leverage your current position David Alexander, Digital Marketer for Mazepress“You know what they say, it's always easier to find a job when you already have one. So if you want a promotion, consider interviewing at other companies and if you get an offer that involves more responsibility and a pay rise use that to your advantage when negotiating with your current employers. Letting your bosses know that you are in demand and other companies are willing to pay you more and position you higher in the chain of command is a sure-fire way to get their attention and increase your chances of success when trying to win a promotion even if it is a little Machiavellian.” 13. Have an honest conversation with your boss or supervisor Kay Rodriguez, Editor-in-Chief of HappytoHustle.com“It might feel terrifying to go directly to your boss or supervisor with a request to get promoted, but putting it on their radar directly shows confidence and strength (both qualities of a great leader!). If you do set up a meeting to discuss a promotion, be armed with specific information about what kind of role/title/salary/compensation you'd like to receive.”