As of the time of this writing, the Republican tax plan has not been signed into law. The proposal has plenty of interesting provisions, to say the least, but most importantly to taxpayers, this legislation would NOT come into effect until next year (Jan. 1, 2018).
This means (A) there will be no impact on your 2017 tax filings which are due on April 15, 2018, and (B) there are a number of end-of-year tax tips that are still effective under the current tax laws. Your McAllen CPA at Abigail Y. Murray, CPA, LLC. wants to add a little joy to your holiday season by sharing with you 14 tax saving tips for both individuals and small business owners.
1. Defer income until 2018. If you have the opportunity to defer income, you may want to consider doing so, especially if you think you might fall into a lower tax bracket in the 2018 tax season. A few options might include delaying an end-of-year bonus. This is a good strategy to move some taxable income into the following year.
2. Increase payments to increase deductions. If you’re making payment on deductible expenses such as school interests or medical expenses, increasing your payments on these deductions can have an effect on your 2017 taxes.
3. Increase withholdings to lower taxes. Does it look like you’ll owe some hefty taxes this year? You can fill out a W-4 and ask your employer to increase your withholdings for the rest of the year to lower down what you owe on your federal income tax. One of the benefits of doing so is that the IRS views withholdings as being paid out evenly throughout the year, which can help you to cover a quarterly tax payment.
4. Contribute the maximum amount allowed on your retirement plan. Contribution to your IRA or employer-sponsored retirement plan can increase your deductibles and lower your taxable income for the year. Try to contribute the maximum amount allowed to reach full benefit.
5. Retirees! Take required retirement plan distributions. Individuals who reach the age of 70 ½ must typically accept required minimum distributions (RMDs) from their retirement plans. Frustratingly enough, failing to do so can lead to a penalty of 50% of the amount that was supposed to be distributed to you.
6. The gift of giving can actually save you. Donating to charities from a taxable account (traditional IRA or 401(k) plan) can lower your tax bill. You should also consider accelerating charitable gifts for the road ahead. The upcoming year could see a reduced value of these deductions.
7. Sell underperforming investments. You can reduce taxes on investments by selling investments, stocks, and bonds that have lost value and generated capital loss. This can potentially help to lower tax liability that you might have on your investments.
Tips For Small Businesses
1. Preparation is key. You’ll need to prepare for the hit to your cash flow by reviewing financial reports with your bookkeeper or accountant. You’ll be able to make the proper adjustments by having an idea of your business’s potential tax bill. This will also open the door to discussing whether or not it makes more sense to pay quarterly estimated taxes rather than carrying that large burden in April.
2. Defer income and increase expenses. Your small business is going to be taxed on its profits. There are a few simple tax tips that you can follow in order to defer revenue and increase expenditures, just make sure that your small business passes through entities reporting business income and falls under a Schedule C personal tax return. You can contact the McAllen CPA of Abigail Y. Murray, CPA, LLC. if you aren’t sure.
- Defer income by depositing less money into your business bank account during these last few months of the year (assuming you can handle the cash flow), send out invoices for the month of December late in the month, and defer customer payments until January 2018 if possible.
- Now comes the easy part – spending money. Assuming that cash flow will not hurt your business for the next couple of months, pay as many business-related bills as possible, consider making some necessary upgrades to equipment (or brand new purchases), purchase offices supplies in bulk that you know are necessary all year round, and contribute to charity.
3. Bosses deserve retirement savings plans too. In the process of running a small business, you might be overly concerned with meeting the needs of your employees and their retirement savings plans. While this is an awesome approach to business ownership, it doesn’t hurt to start contributing to your own retirement plan as well. Whether you are opening a Simple IRA, 401(k), or profit-sharing plan, the contributions you make for your employees and yourself are generally tax-deductible. Make sure that you establish the plan before the end of the year to get the deductions for 2017.
4. Take advantage of startup costs. If you’re a startup business, you may be able to deduct up to $5K in startup costs and an additional $5K in organizational costs. These deductions can be applied to a number of expenses including advertising, employee training and wages, legal and accounting fees, and more. Be aware that these deductions no longer apply after you’ve hit $50K in expenses or organization costs. More than $55K and no deductions will be allowed.
5. Don’t forget to make a charitable contribution. If you’re looking for a tax deduction, donating to a charity, sponsoring at a charitable event, or donating inventory are all generally beneficial to your business.
6. Don’t forget about home, auto, and lunch deductions. As a small business owner, there are a number of deductions that you may be eligible for if you work out of a home office including mortgage interest, insurance, utilities, maintenance, and other items. You can find instructions and IRS Form 8829 here.
Alongside home office deductions, you can also deduct car expenses if you use it for your small business. The IRS allows you to claim standard mileage rate and actual car expenses that include gas, oil, tires, repairs, insurance, registration fees, and more.
Last, but certainly not least, are business-related lunches. As per the IRS, generally, only 50% of business-related meal and entertainment expenses are allowed as a deduction. Still, this can be a meaningful deduction for your business if you find yourself constantly having lunch or dinner meetings with clients.
7. Use a tax professional to get the most deductions and benefits. You may be tempted to handle your taxes alone or to utilize a simple tax service. But you should really consider having your taxes prepared by a tax professional like a CPA, who has the training, experience, and industry know-how to really delve into those taxes and find you the best deductions for your needs. The savings you’ll receive will definitely offset the costs and you can find comfort in knowing that everything was properly filed.
For more tax tips and financial guidance, call up the professionals at Abigail Y. Murray CPA for the support you need and tax expertise you deserve.
Wrap up the tax year on the right note and save yourself some money for when tax season comes around in a few months. And don’t forget to call on the knowledgeable and experienced experts at Abigail Y. Murray CPA in McAllen for the support you need.
Contact our McAllen CPA today at (956) 800-5600 to start making plans for the upcoming year.
September is a busy month with people and their families getting back into the groove of the school year.
Your McAllen CPA, Abigail Y. Murray CPA, knows that it is also a busy month when it comes to taxes – for individuals, businesses, and corporations alike. There are a number of important deadlines coming up during September that are worth keeping an eye on.
There is also plenty you can do to both catch up and get ahead when it comes to your tax situation.
A Few Key September Tax Deadlines
Labor Day is one of the few, big national markers in September but the following dates are worth keeping in mind as well:
- September 11 – This day will forever be important in our country for obvious reasons. However, it is important to know that it is also a critical deadline for people whose income relies heavily on tips. For all employees who received more than $20 in tips during August, it is the cut-off date to report them to their employer.
- September 15 – The 15th is a deadline for a number of different entities. For individuals, it is the due date for the third installment of their 2017 estimated tax. This applies only to those people who have chosen not to pay their tax through withholdings. For partnerships that were given a 5-month extension on their 2016 tax return, the 15th is the deadline to file their return using Form 1065. It is also a due date for both corporations and S-corporations.
There are a number of other deadlines throughout the month that are worth reviewing as soon as possible.
Smart Tax Moves You Can Make
Taxes are something that can leave us scrambling from year to year and 2017 is no different. A few smart tax moves to consider this month include:
- Many people took the available extension on their 2016 return to give themselves more time to pay.
While the official deadline is not until October 16th, you can avoid accruing additional interest and get all that annoying paperwork out of the way by filing this month. The sooner you get it done the sooner you can start planning for how to best use your return money.
- With so many people heading back to school, you should also start looking into any and all available educational tax breaks. The cost of school is a difficult thing for many to manage. From kindergarten to college, education can come out costly.
One option to check out is the Coverdell Education Savings account, which can help pay for elementary and secondary school items like computers.
The American Opportunity Tax Credit has the same function for college students and covers important expenses like textbooks.
- While we have been fortunate here in the Rio Grande Valley to escape the devastation of Hurricane Harvey, it is important for everyone to be prepared not only for the physical effects of a disaster but the financial ones as well.
The IRS has announced tax relief efforts for the counties that were hit hardest in Texas, as well as neighboring states, by Hurricane Harvey and the same will likely be true if our region is affected in the future.
Staying informed in the aftermath of disasters is important to help family members that live in cities hit by disasters and to plan ahead in case your family is in a similar one in the future.
Don’t let September pass you by without meeting tax due dates and making preparations for tax season!
September is a month of transition from the slower pace of summer to the hecticness of the school year. It is also an important intermediate step between last year’s and this year’s taxes.
At the McAllen CPA office of Abigail Y. Murray CPA, we are here to help guide you through all the different deadlines that your personal tax situation faces. Our staff has the expertise to make that transition quick and problem-free.
Contact us today at 956-800-5600 to set up a consultation. Let us work with you to take care of all your tax questions.
If you have an employer-sponsored retirement plan, such as a 401(k), you have a good retirement savings foundation as these plans are generally easy, convenient, and rewarding to maintain. Contributions to your 401(k) plan are deducted from your paycheck, tax deductions are available up front, and annual contribution limits are sizeable.
But there is still a case to be made for an individual retirement account (IRA). An IRA savings account is designed to help you prepare for retirement while offering some tax advantages. With an IRA, you’ll also have the ability to save more for retirement and diversify your investment options.
However, the type of IRA that best suits your needs will depend on your income, filing status, and future estimated tax rate.
There are two types of IRA accounts: the traditional IRA and the Roth IRA. The traditional IRA route would be a stronger option for you if you expect your tax rate to be lower in retirement. In contrast, a Roth IRA would work in your favor if you expect your tax rate to be higher in retirement.
Deciding on the best course of action for your financial investments and retirement savings can be a daunting task. But you don’t have to handle your financial future alone. It’s wise to explore other retirement options to maximize your future savings; it’s also wise to seek outside professional help to achieve this goal.
An experienced McAllen CPA firm like Abigail Y. Murray, CPA, LLC. can help ensure that your savings and investments are well cared for.
With a traditional IRA, your contributions are tax deductible for federal and state tax returns. It is worth noting that by lowering your taxable income for the contribution year, your adjusted gross income is lowered, too.
This means you may qualify for other tax incentives that you would not have been eligible for otherwise. Instead, you pay taxes on the distributions you take in retirement or from withdrawals made prior to retirement. This applies to qualifying withdrawals of up to $10,000 made before the age of 59 ½.
While you will be exempt from the 10% early-withdrawal penalty for qualifying expenses such as first time home buyers, higher education, and unreimbursed medical expenses, you will still be required to pay taxes on the distribution.
Investment potential is not diverse when it comes to traditional IRAs. The types of assets that this type of account can hold is limited to publicly traded stocks, bonds, mutual funds, and bank CDs.
Tax advantages for a Roth IRA function differently than a traditional IRA. Tax breaks are not provided for contributions but withdrawals made in retirement are not taxed with Roth IRAs. Contributions – not earnings – can be withdrawn from a Roth IRA without having to pay penalty fees or taxes under the age of 59 ½.
Tax-free withdrawals of up to $10,000 can be made, too, for qualifying expenses, given that at least five tax years have passed since the first contribution on the account.
While investment assets are limited in traditional IRAs, Roth IRAs present the opportunity to invest in individual stocks, index funds, lifecycle funds, and other alternative investments.
Income Considerations and Limitations
There are no age limits for either type of retirement plan, though the same cannot be said for income limits and restrictions. In 2017, contribution limits for both Roth IRAs and traditional IRAs were $5,500 or $6,500 for those 50 and older.
But, consider that under traditional IRAs, anyone earning income under the age of 70 ½ can contribute to their retirement plan. Tax deductions on contributions will depend on income, marital status, and coverage via an employer-sponsored retirement plan. The IRS website offers plenty of details.
Income-eligibility restrictions come into play with Roth IRAs. As of 2017, single tax filers must have a modified adjusted gross income (AGI) less than $133,000 to contribute to a Roth IRA, where phase-out begins at $118, 000. The modified AGI for married couples filing jointly must be below $196,000, where phase-out begins at $186,000.
Reduce the stress of your financial planning by relying on the McAllen CPA professionals at Abigail Y. Murray, CPA, LLC.
Our experienced McAllen financial advisors will be able to provide you with guidance in determining which type of retirement account would best suit your needs.
Contact us today at (956) 800-5600 to begin your journey to a more prosperous and secure future.
It only takes a quick step outside your front door for you to know that summer is in full force here in McAllen and the Greater Rio Grande Valley. The sun is shining brightly and everyone is searching for a way to enjoy the outdoors.
Whether you head to the city pool or are looking at more organized summer activities, we here at Abigail Y. Murray CPA in McAllen, Texas know that you might have to reach into your pockets to pay for those summer programs you and your family can enjoy.
But that doesn’t mean that you can’t save some money! There are plenty of cost-cutting and tax-deductible activities out there for those of us who do our homework.
Summer Fun Doesn’t Have to Cost a Ton
The first activities to start looking into are the ones that will not cost your family anything at all. These opportunities are all around you and ones that you may already be well-acquainted with.
Your local park and recreation department is sure to have a number of activities and events you and your family can enjoy at little to no costs. Your church and other youth groups will also likely offer summer programs, such as vacation Bible school.
A little Google searching will also turn up free arts and craft events as well as day camps occurring throughout your city.
One of the best places to find free activities for your children is at your local library. These are designed not only to keep them learning while away from school but also offer outlets for their imagination and creativity.
A Membership Pays Back in More Ways Than One
Even if what your city library is offering comes with a price or other membership fee, you will probably still be able to qualify for a tax deduction on that cost at the end of the year.
The same is true for memberships at many museums, zoos, and other facilities all over the state and country. Having a membership with these sorts of organizations will not only provide an enjoyable activity for you and your family to enjoy but will also likely be tax deductible.
Your membership has the added bonus of helping support these organizations in your community. The money brought in not only helps to maintain both facilities and staff but also promotes their growth.
The scope of nonprofit organizations is much wider than just animal care centers and museums, though. Your community is sure to have other places you can find something that fits your family’s varied interests.
Paying For Childcare Can Be Tax-Deductible
Sometimes working parents (and those looking for work) have to enroll their children in summer programs while they are on the clock, as de facto child care.
This usually applies to parents with children 13-years-old and under and these programs can come with added costs. Just having someone to provide child care is not enough to eliminate stress because of the side effect it can have on personal finances.
If that’s the case, there are five important facts for everyone to remember about The Child and Dependent Care Credit, which is aimed at providing financial relief from what you pay for childcare in the summer, as well as the rest of the year:
- Overnight camps and other forms of care can’t be used toward this credit.
- Day camps will likely be covered.
- Where you kids are being taken care of, whether at home or at a facility away from your house, will not count against you if you qualify for this tax credit.
- You can be credited up to 35% of expenses that qualify for this credit; the total is determined by your income
- Up to $3,000 of expenses for one child and $6,000 for two can be used to determine how much you are credited.
There are a number of items to consider when determining if someone qualifies for this tax credit.
For anyone interested in learning more please feel free to contact our McAllen, Texas office today or you can look through Publication 503 from the IRS.
Abigail Y. Murray CPA, LLC is here to answer any questions you might have about how summer activities can affect your taxes.
The last thing anyone wants to worry about is what effect the money going into enjoying the summer months will have on the rest of your year.
Abigail Y. Murray CPA is happy to remind you that there is no cause for concern. There is a good chance that the plans you have for your kids, including camps and other programs, are likely to come with the added benefit of a tax deduction or credit at the end of the year.
Contact us today at 956-800-5600 with any questions you have about your summer finances. Don’t go through the rest of the year without the answers you need.
At some point in life, many of us worry about not being able to make ends meet and it can become a very stressful situation to bear. Being fired or laid off from your job is a very common, yet unpredictable, part of life.
But even in the face of such adversity, we here at Abigail Murray, CPA, LLC wholly believe you can improve your situation with the right financial planning.
Before panic takes over, it’s important to take a step back and analyze a few things in order to take control back of your financial situation.
Consider taking the following steps in the face of unemployment:
- Take advantage of programs like unemployment.
Very often, both big and small organizations go through downsizing, which is the elimination of staff positions on the operating payroll. Downsizing is intended to be a permanent downscaling, and a layoff is intended to be temporary, but regardless of which circumstance your situation falls under, you may be eligible for unemployment and other governmental aid.
You can get in contact with your state’s unemployment benefits office to obtain more information about your potential eligibility. If you discover that you are in fact eligible, we recommend that you apply for unemployment as soon as possible.
- Revise your health insurance plan.
Your health insurance was probably covered by your previous employer, but it doesn’t necessarily mean you will lose it if you no longer work there. You can speak with the company’s Human Resources department about continuing your health coverage. This option can be an expensive one though and perhaps getting a new policy will benefit you more.
You may also be able to enroll in marketplace health insurance for the rest of 2017. Individuals who have recently lost their job may be eligible for marketplace coverage.
- Prioritize your expenses.
It can be a bit terrifying having to prioritize what bills are more important than others, but in the midst of a financial crunch, it may be necessary to make some sacrifices and pay the necessities first. The essential expenses to pay off should include rent or mortgage, utilities, food, and insurances.
- Create a budget
Some companies may offer a severance package, but without a secure income, it is highly unlikely that money will last very long. We cannot stress how important it is to organize your financial responsibilities and create a personal budget based on the most vital expenses – especially if you can’t rely on savings.
- Speak with your creditors.
Even with the help of a severance package and unemployment benefits, it may be difficult to keep up with all your payments. Because you don’t want to ruin your credit during this time frame, you should immediately reach out to your creditors to let them know about your situation.
Some creditors may offer short-term hardship programs that will at least help to reduce your monthly expenses, but they usually won’t last longer than 6 months to a year.
Don’t wait! The only way to find out is to call and ask.
- Make cuts where necessary.
This goes hand-in-hand with creating a budget; you’ll need to recognize where you are making unnecessary purchases and cut back as needed. This can include certain luxuries such as cable costs, movie streaming services, cell phone related costs, constant restaurant dining, and the likes.
- Take the necessary steps and start looking for another opportunity.
The most important thing to note is that you must not lose hope nor confidence when becoming unemployed. Although for some the experience can be overwhelming, we encourage you to remain optimistic. Update your resume or pick up some additional training as needed.
If you acquire a job in the same field you were previously in, you can claim those job search expenses as itemized deductions on your tax return.
- Don’t stop living.
The stress of being unemployed can often lead you to neglect your own health, relationships, and personal well-being. However, it is important that you maintain some semblance to your “normal” lifestyle including exercising, eating properly, maintaining relationships, and generally just keep up with your hobbies.
Don’t make a tough situation harder by ostracizing yourself from loved ones. Keep up with positive activities and this will give you the energy and confidence to see the situation through.
Abigail Murray, CPA, LLC wants to help you plan financially for the good times and the bad times. Contact us today at (956) 800-5600 to learn more about preparing yourself financially for all types of situations.
With school coming to an end, are you thinking about a summer job to earn some extra cash?
We here at Abigail Y Murray CPA, LLC want you to understand the important tax implications that may apply to you if you pick up a summer job – whether you’re a college student or high school student.
If you’re committed to making some extra money this summer, whether it’s for spending or savings for college, it’s important to know that not all the money you make this summer will go straight into your pockets.
You might be taking on an exciting new endeavor like a paid internship or perhaps you’ve taken a job at your local popular steakhouse. Either way, a new job is always exciting when you know you’ll be making your own money.
It’s also the perfect time to cultivate your knowledge about federal income taxes, tax returns, and other tax implications.
Did you know that all tip income is taxable?
All the tips you receive at work are considered income, and when you begin the process of filing your income tax return, you must report all the tips that you receive directly.
According to the Internal Revenue Service Publication 531, employees who receive tips must report it on their income tax return, as well as to their employer. Publication 531 of the tax code also implies that the social security tax rate an employee must pay on tips is 6.2% when you report more than $20 in cash tips.
It is highly recommended that you keep a daily record of your tips.
It’s also important to recognize that tax code rules are different depending on the type of work you do. Sometimes, certain jobs qualify as self-employment such as babysitting, newspaper carriers or distributors, and lawn care services among others.
You may be able to deduct certain costs when filing, and if you’re under 18, you will probably be exempt from Medicare and Social Security taxes.
However, you may be required to figure a few things out like the net profit or net loss from your income-generating services. Generally, self-employed individuals are required to pay a self-employment tax as well as income tax.
Contact Abigail Y. Murray, CPA, LLC in McAllen to learn more about the Self-Employment Tax and if it applies to you.
You’ve probably heard about W-4 Forms.
W-4 Forms play a very important role in the current tax system. They are used by your employer and their purpose is to withhold the proper amount of income taxes from your paycheck.
The amount withheld from your paychecks during the time you work is determined in the W-4 Form. There are such things known as Allowances, however, that can give you some control over your paycheck withholdings.
It’s important to be informed about Allowances that may apply to you and how they can affect how big your tax refund is or whether you could even end up owing taxes. We know federal tax talk can be confusing (and undesirable) at times, but the quicker you learn about it, the easier it will be in the future.
By the way, the W in W-4 stands for withhold. That’s what you call a fun tax fact!
If you’re working this summer before going back to school, you’ll likely want to know how to get your withheld income taxes back from the IRS. Starting a new job comes with many responsibilities and we want to help guide you through the processes.
Contact the accounting offices of Abigail Y. Murray, CPA, LLC today at (956) 800-5600. We’re located in McAllen, TX and serve the Greater Rio Grande Valley area. We’re always prepared to answer your questions and give you the best financial advice.
Did filing your tax return this year pique your interest in the POTUS’ new tax code plan?
A little over two weeks ago, White House National Economic Council Director, Gary Cohn, announced the POTUS’ plan for a simpler tax code. While the potential new tax code changes didn’t come with full details, the overall message was clear – the tax system needs to be simplified.
As was described in late April by the current administration, the new proposal calls for doubling the current standard deduction for American families. This means income tax for couples would not be charged until the first $24,000 of income rather than the current standard of $12,600.
Trump’s proposal also includes cutting down the tax brackets from seven to three (respectively 10%, 25%, and 35%). Currently, tax brackets range from 10% to 39.6% based on income.
While most of us have finally gotten past the anxiety caused by the always stressful tax season, you might have some new concerns and questions about Trump’s tax plan – assuming it’s approved of course.
Abigail Y. Murray, CPA, LLC in McAllen is here to offer you a bit of insight into the plan and how it may affect your financial situation.
Good News: The Plan Can Benefit Parents (And Businesses)
One of the most prominent perks of the potential plan promises to deliver more benefits to families that pay on expenses like daycare for their children.
The POTUS’ plan pitches an increase on the Child and Dependent Care Tax Credit, which is now up to a maximum of $2,100. This credit is available to parents who pay for child dependent care so they are able to go to work, or school, amongst other things.
The new plan also includes a number of provisions that would lower the tax rate for business owners – small and large alike.
Currently, countless family-owned businesses and small businesses pay tax rates as high as 39.6%. The new administration’s plan would greatly reduce the tax rate for these business owners down to an amazing 15%.
But Wait…This Plan Also Cuts Most Tax Deductions Away
Yes. Literally, most individual state and tax deductions would no longer be implemented in the new tax code plan.
And what exactly does this mean for you? While there is still uncertainty as to the exact specifications it could, unfortunately, mean no more writing off medical expenses, property taxes, and other deductions.
The reality is that there still remains quite a bit of ambiguity surrounding Trump’s tax plan that understandably raises many questions about the individual tax deductions many American families and singles are currently eligible to write off.
Treasury Secretary Steven Munich did add on that as a part of the plan, the current White House administration also intends to keep tax deductions associated to charitable contributions and homeownership.
Ideally, Trump’s proposed tax plan will reduce tax rates while encouraging economic growth. However, the concern always remains; what will these changes mean for individuals and families?
At Abigail Y. Murray, CPA, LLC, your financial well-being is always our top priority.
We want you to first take a step back and breathe for a moment.
At the accounting offices of Abigail Y. Murray CPA in McAllen, Texas we know you might feel a bit overwhelmed with these potential new tax changes, especially as you finally had a break from all this tax talk after filing your tax returns.
But we are here to help. That’s why we stay informed about the latest up-to-date legislative and administrative developments concerning taxes, so that we can provide you the best advice and accounting tips to ensure your financial success.
If you want more information about the proposed tax plan and how it may affect your situation, please contact Abigail Y. Murray, CPA, LLC today at (956) 800-5600.
Well, it happened.
The tax deadline passed and you didn’t file your return. You might start worrying about the consequences of those actions and how they’ll affect your finances.
Don’t panic just yet, the staff at Abigail Y. Murray, CPA, LLC has the expertise to help you get through this. Your path to sorting your tax situation out begins with being informed about what you are facing.
The first thing you need to know.
The road to relieving tax stress starts with understanding that not filing a tax return needs to be taken seriously. Many possible consequences can come from not filing your return, starting with the fact that it is technically tax fraud if you do not file your return.
While you will likely not be charged with a crime, the IRS will make sure you face the possible penalties. The penalty for failing to file can be as large as 25% of the taxes you owe for the year. Failing to pay similarly holds up to a 25% penalty on the amount due.
That means you could potentially pay up to a 50% penalty on what you owed to begin with. The IRS is also nice enough to charge interest on this amount.
So, what can you do?
You can still get a six-month extension to file your taxes by filing Form 4868. This will require you to estimate what you think you will have to pay in taxes for the year. As a general rule, aim high, because if you pay more than you owe, you will be refunded the extra amount.
This extension does not mean much if you still fail to file your return. It does you no good to not file and hope that no one notices.
If you do not file your return, this opens you up to an unpleasant situation where the IRS will do it for you. With the ability to file a “substitute return”, the IRS will collect any information they can on you, including documents like W-2s, and file a return for you and send you the results.
As nice as it may sound to have someone else do your taxes for you, this scenario will likely not go in your favor. These substitute returns will not come with many deductions and credits, as the IRS does not have much incentive to look for them.
This will result in a larger amount of taxes owed in comparison if you were to file in a traditional manner.
On a positive note, filing your own return might show that you are owed a refund, even if you didn’t initially think you were going to receive one.
Be aware that you will have an additional three years to file and claim your refund before the U.S. Treasury simply accepts it as a “donation” to the government. That alone should be motivation to file your tax return every year, especially if you think you are owed money back from the IRS.
What if I owe?
Coming back to the possibility that you do owe taxes, especially more than you can pay at the time, you still have two options. One, and the simpler of the two, involves setting up a payment plan.
If the amount you owe is less than $50,000, it is possible to arrange an online payment agreement. You will have to fill out a Form 9465 to apply for a payment plan if the amount is higher.
Both payment options will usually allow you up to 72 months to pay the amount owed. It is best to pay these amounts off as soon as possible to save money, as interests and penalties will be tacked on the longer the repayment process takes you.
The second option open to you is to make an offer in compromise. This one is pretty self-explanatory: you make an agreement to pay a portion of your tax bill and the IRS removes the responsibility of paying the rest. This can be a complicated process but it is potentially much cheaper than a payment plan if the IRS agrees with your case.
An experienced firm like Abigail Y. Murray, CPA can help make sure that if you do have a tax bill, every possible tax break will be explored for you.
However you decide to tackle this dilemma, it is always a good idea to consider outside professional help.
If you live in the greater McAllen metro area and haven’t paid your 2016 taxes, Abigail Y. Murray CPA can help guide you through the process and give you financial advice on choosing between a payment plan or an offer in compromise.
Contact us today at (956) 800-5600 for the help you need to overcome any tax return hurdles.
It’s that time of year again; the middle of April is nearly upon us, and if you aren’t aware, that means tax due day. That means if you haven’t filed your taxes yet, you are starting to walk on thin ice.
At Abigail Y. Murray, CPA, LLC we know that there are still a couple of cards-up-your sleeve that you can play, but just be careful when gambling with the IRS. They don’t always play with a full deck.
Consider the following last minute tax tips as the clock gets closer to twelve.
You Have More Time than You Think, Sort Of
Anybody who has filed a tax return before probably has the standard deadline drilled into their head: April 15th. However, if you have put it off submitting your taxes for one reason or another, this year you have until April 18th to make a move.
There are two reasons for the deadline change this year. The first one is that April 15th falls on a Saturday. Normally, the deadline would be moved to the following Monday but Washington, D.C. will be celebrating Emancipation Day on April 17th.
Also, in addition to April 18th being the deadline to file, it is also the last day you can apply for an extension. So if you would like to procrastinate a little bit longer, there is that option.
This extension does not mean that you don’t have to pay taxes though. As easy as it is to get more time to file your taxes, you will still have late-payment penalties of 0.5% per month after the April 18th deadline. If you expect to owe taxes, you should plan to make a payment to help you avoid those potential charges that can come with an extension.
There is Someone Out There Ready to Help
With the last days of tax season comes trouble with scheduling an appointment with a tax professional. Luckily, you don’t have to go on a scavenger hunt just to track down someone who can help you.
For those who make $54,000 or less, the Volunteer Income Tax Assistance program in your local community can provide free tax preparation assistance. Everyone who chooses to take this route should take comfort in the fact that IRS-certified volunteers staff these programs.
The IRS’s Free File Program is another option to consider and one that is completely online. Open to more than 70 percent of all taxpayers with an upper-income limit of $64,000, the Free File Program grants access to software from some of the top companies of tax preparation.
Electronic filing has become the norm (and is even recommended by the IRS) and accounts for four out of every five filed tax returns. This method provides the quickest processing and typically takes less time; provided you have all the necessary documents.
The IRS also lets you know they have received your filed tax return immediately after you complete your paperwork. Your refund will get to you quicker and you won’t have to worry about any potential snags or hold-ups in the mail.
Some Additional Things to Remember When Filing
- Gathering all of the different forms and information you need can sometimes be frustrating. It’s easy to forget something, like a W-2, especially if you have worked at more than one place or moved in the last year. Once you gather all the paperwork together your path to filing gets smoother, assuming of course, that everything is correct.
- Your employers had to have all W-2 forms mailed out by the end of January. More than likely, everyone should have his or hers by now. But, if you have waited this long to file and found something that looks wrong on your W-2(s), you don’t have to worry. You can call the IRS at 1.800.829.1040 and get the information you need. All you’ll need is your address, Social Security number, and phone number with you when you call.
- When looking for tax breaks, you might get discouraged as the filing deadline approaches and think that there are not many tax deduction options available to you. However, one thing to consider is the kind of retirement plan you have with your company. If you don’t have one, it might be time to think about contributing to a traditional IRA or a Roth IRA. Paying into a traditional IRA can provide up to $5,500 in deductions for anyone under 50 and $6,500 for people older than 50.
- While they don’t provide deductions now, the money in Roth IRAs is tax-free when you withdraw it. Either option allows your money to grow tax-free; all you need to consider is where you think your tax bracket will be when you retire.
Don’t Let Not Filing be an Option
It can be scary to face the prospect of having to pay taxes, especially if your finances are not where you would like them to be. Even an extension can be a daunting proposition.
Regardless of your situation, not filing your tax return will always cost you more than not being able to pay the taxes you owe. If you go more than four months without doing it, a 25% penalty on the taxes due and the interest from that total will be your penalty.
Don’t compound potential problems by hoping the IRS doesn’t notice you didn’t do your taxes.
There is still plenty of time and plenty of help for anyone who hasn’t submitted their tax return. Don’t hesitate to give the accounting office of Abigail Y. Murray, CPA, LLC in McAllen, Texas a call today at (956) 800-5600 for the support you need.
Tax season is stressful enough without having to worry about a dreadful audit. Unfortunately, the average American probably has only a vague understanding of what a tax audit actually is and this lack of information leaves many in fear of that obscure tax boogeyman.
Let the professionals at Abigail Y. Murray, CPA, LLC. shine some light on the situation by providing you some information about common tax audit myths and misunderstandings. We promise there’s nothing to be afraid of…or is there? (We kid. There isn’t.)
- Myth: Tax audits happen all the time.
Not really. If you make anywhere between $1 to $199,999, you have less than a 1% chance of being audited. Those numbers do increase as you start making more, with multi-millionaires seeing the highest percentage.
Interestingly enough, you have a higher probability of getting audited if you don’t report any income (5.26%) versus those making up to one million (3.62%). Find some comfort in knowing that you probably won’t have to deal with those scary IRS agents.
- Myth: Too many deductions will trigger an audit.
You may be tempted to avoid using valuable tax deductions out of fear of an audit, but a long list of legitimate deductions shouldn’t be a cause for concern. This is especially true if you work from home. The IRS has created a simplified system of home office deductions so that taxpayers can benefit from them without fear of punishment.
The IRS uses systems to compare your return to similar ones, but as long as everything was properly completed on your tax return, you shouldn’t have a reason to worry.
- Myth: You’re asking for an audit if you E-file.
No, E-filing does not increase your chances of getting audited. Actually, E-filing is likely to reduce the probability of getting audited as they are more accurate than handwritten returns. The IRS website even has this to say:
“The IRS reminds filers that e-filing their tax return greatly lowers the chance of errors. In fact, taxpayers are about twenty times more likely to make a mistake on their return if they file a paper return instead of e-filing their return.”
- Myth: I’ll definitely owe money if I get audited.
Of course an audit is going to be a little nerve wracking by nature, but find some solace in knowing that tens of thousands of taxpayers actually get money back after an audit. The IRS noted that in 2015, they paid tax payers back on almost 40,000 audits, totaling about $1.1 billion.
Also, 9% of field audits and 12% of correspondent audits end just fine without penalties or a need to change a tax return.
- Myth: Filing an extension or a tax return amendment is an automatic audit.
It’s easy to see how filing an extension or amendment can draw more attention to your tax return, but the IRS has already revealed these to be myths. Your return will go through the usual screening processes and won’t be red flagged merely because your actions.
Your best bet when amending a tax return is to effectively explain why you needed to make the necessary changes. And filing an extension can actually help you to avoid being audited by giving you more time to correctly complete your taxes and thus reducing your risk of errors. Just remember that filing an extension DOES NOT mean you can pay late—everyone has to pay by April 18th this year.
- Myth: I’m self employed so I might as well prepare myself emotionally for a tax audit right?
This misconception is really just dependent on a freelancer’s or self-employed individual’s ability to not get carried away with deductions or under-reporting earned income. Because of certain deductions available to these non-traditional workers, the chances of an audit may seem higher, but the reality is that as long as you remain truthful about all the items on your return, you shouldn’t have any reason to be assume you’ll be audited.
It is in your best interest as a freelancer or self-employed individual to maintain precise records of your business expenses, keep copies of all your receipts, and a mileage log if you use your vehicle for business purposes. Ultimately, play it safe and don’t fall into the temptation of stretching the truth on your tax return.
- Myth: Your refund check came in so no more worries.
No. The IRS can issue you a refund and then initiate an audit after the fact. The IRS can go back up to three years to audit someone, and even as far back as six years in really serious scenarios.
- Myth: You’d prefer a root canal over an audit.
Audits aren’t what they used to be. Over the last few years, a major effort has been made to improve customer service and focus on taxpayer rights. In fact, the vast majority (70%) of audits are actually done by mail. Meaning there’s a high likelihood you won’t even have to deal with them at home or at your workplace.
While an audit definitely isn’t the most pleasant experience, it’s no longer the hellish ordeal it once was.
IRS boogeymen coming your way? Abigail Y. Murray CPA is your light in a scary situation.
If, for whatever reason, you are chosen to for an IRS examination, get the experienced and professional expertise you need with Abigail Y. Murray, CPA. Our we offer top quality support during the toughest of times. So you can worry less and live more.
Give us a call today at (956) 800-5600 for the best accounting support you can find in the Rio Grande Valley and McAllen metro area.