As residents throughout New York State prepare to gather with family and friends next week for the Thanksgiving holiday, Jan. 1 and 2016 are just around the corner. Also not far off, or far enough for most people’s liking, is the dreaded April 15 tax filing deadline. For small business owners, there are important steps that should be taken today regarding end-of-the-year tax planning that can make the upcoming tax season much less stressful.
For any business owner, having an organized and partially automated process for keeping track of financial records is a must. Today’s marketplace is flooded with accounting and tax-preparation online software programs that make it much easier to organize and keep track of a business-related expenses, income and deductions. For a small business owner, not only is it important to use one of these programs, but it’s also wise to input related financial data on a regular and consistent basis.
In addition to ensuring that one’s financial records are organized and up-to-date, business owners are also advised to, based on a business’ financial situation, plan and save for expected tax liabilities. Doing so will ensure that a business is able to meet its tax obligations and can prevent a business from incurring fines and penalties imposed by the Internal Revenue Service.
The end of the calendar year is also an opportune time for business owners to become educated about any current or impending tax law changes. For example, many small business owners will be impacted by changes related to the Affordable Care Act. Additionally, it’s important to be aware of any and all tax-deadline changes.
While ensuring that financial records are organized, planning for tax-related expenses and keeping abreast of tax changes can greatly benefit a business owner and his or her bottom-line, come tax time, it’s wise to turn to a tax professional. Likewise, small business owners who have questions or concerns about tax issues are advised to consult with an attorney.
We are all human and therefore prone to making the occasional mistake or two. This includes financial errors concerning one’s personal or business expenditures as well as tax-related faux pas. This is something that even the Internal Revenue Service acknowledges and seems to understand. However, depending on the type of mistake, the agency’s response may not seem very forgiving.
The IRS lists the following tax-related mistakes as being among the most commonly made by taxpayers.
- Failing to provide or making errors when entering Social Security numbers
- Adding, subtraction or other math-related errors
- Using the wrong filing status (i.e. single v. head of household)
- Taking too many credits or deductions or those to which an individual isn’t eligable
- Forgetting to sign or date tax forms
While many of the common tax mistakes cited by the IRS can be easily corrected and shouldn’t result in any fines or other penalties, other tax errors may be viewed as being willful in nature and therefore carry hefty penalties. For example, if the IRS suspects or has reason or evidence to believe that an individual took action to avoid paying taxes, he or she may not only be hit with costly fines, but may also face criminal tax evasion charges.
For individuals who wish to rectify mistakes made on filed tax documents prior to the IRS’ discovery of such errors, a Form 1040X can be filed. When doing so, an individual must be certain to reference the specific tax document and year that the amended form should replace as well as the specific changes and corrected amounts.
In cases where an individual learns that he or she is being audited or has been contacted by the IRS in reference to tax mistakes, it’s important to contact an attorney.
When it comes to taxes, most Americans are looking for any and every way possible to avoid handing over their hard-earned dollars to Uncle Sam. While failing to file or pay one’s taxes is not an advisable means of accomplishing this goal; there are legitimate ways that one can deduct both personal and, if applicable, business expenses to reduce tax liabilities.
When it comes to personal tax deductions, there are certain deductions that anyone who qualifies can take advantage of. These include school supply expenses for teachers, alimony payments and interest on student loans. Additionally, self-employed individuals who contribute to their own retirement plan and pay their own health insurance can deduct these expenses.
In some cases, it makes financial sense for an individual to use a Schedule A tax form and itemize deductions. Such deductions may relate to medical expenses, gifts and donations as well as taxes paid on real estate, personal property and mortgage interest. When it comes to both standard and itemized personal deductions, it’s important to understand and abide by the Internal Revenue Service’s restrictions and rules.
This same advice should be heeded by individuals who plan to deduct business-related expenses. In general, business deductions include “anything that is an ordinary or necessary expense for your business, or that enhances your business.” It’s important to note, however, that not all business-related expenses can be deducted at 100 percent of their value. This includes business lunches, client gifts and motor vehicle expenses.
Individuals and business owners who fail to seek advice and assistance when taking tax deductions can make mistakes and incur IRS fines and penalties. In some cases, such deductions can even lead to an IRS audit and possible criminal charges.
In two recent blog posts, we discussed issues that may affect and lengthen the statute of limitations for IRS Audits as well as options for taxpayers who fail to comply with FATCA reporting requirements. Recent actions by members of the U.S. Congress resulted in some important changes with regard to both of these IRS matters.
Oddly enough, these important tax changes were rolled into a completely non-tax related bill, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, making it likely that many taxpayers will miss them. Below are some of the important deadline and other changes that affect individual taxpayers, business owners and foreign-account holders.
Previously, an individual who was audited could expect to produce related financial records for the last three years and, under certain circumstances six or more years. However, with these most-recent tax changes, the standard IRS audit period increased from three to six years.
For business owners, the deadlines for tax filings changed with regard to those who have business entities registered as partnerships and C corporations. To avoid possible fines or penalties, business owners would be wise to double-check with a tax professional about any applicable changes to tax-related filing deadlines.
For U.S. citizens with foreign account assets equaling $10,000 or greater, the deadline for filing a FBAR changed from April 15 to June 30. Additionally, much like one’s income tax return, an individual can now also file for a six month FBAR filing extension. As we noted in a previous blog, it’s important that foreign account and asset holders remain compliant with IRS reporting requirements as those who fail to do so can face fines that, in some cases, may exceed one’s entire account balance.
Individuals who have questions or concerns about these and other IRS changes and matters can benefit from seeking the advice and assistance of a tax attorney.