What You Need to Know About Net Earnings

When you’re just starting out in the business world, all kinds of new terminology gets thrown at you. And, while this terminology can feel a bit overwhelming, a great deal of it is very important to know and understand, especially when it comes to financial and tax information.

One “tax term” you will definitely need to familiarize yourself with is “net earnings.” You may also hear this referred to as your business’ “net income” or “profit.” You can determine your net earnings by subtracting your business expenses from your gross business income.

Of course, as with most tax matters, it’s not always as simple as just that. If your business has product inventory, for example, you must include the cost of goods sold in your calculations.

Likewise, if your business is a corporation, you have to include compensation of corporate officers in your earnings calculation.

In general, how you calculate your net income and what factors figure in will depend largely on the type of business you have and the type of tax form you are filing.

Tax Reporting

When it comes to tax reporting, you will always need to know your net earnings since this figure will be used to determine your business income tax.

Most small businesses will use Schedule C to calculate their net income. However, the process will be different for those who are self-employed or in partnerships.

Obviously, tax reporting and calculating net earnings the right way can be a bit challenging. Thus, your best bet is to get professional help with figuring out these amounts. Professionals can also help you to take advantage of any deductions available to you to help you reduce your net income figure, thereby reducing your business taxes.

For expert help and advice with calculating net earnings and all the other tax issues businesses have to deal with, be sure to contact the friendly professionals at Lewis CPA.

Tax Tips for the Self Employed

There are a great many advantages to being self-employed. Whether you’re a freelance writer or an artist, you get to set your own hours and work in a way that is convenient for you. With that said, however, your taxes can be a bit trickier than they are for the average person who is not self-employed.   

However, even though your taxes can sometimes be tough to figure out, there are certainly some benefits. To start with, you are eligible for a great many deductions that can help to cut down on your taxes. Of course, you have to know about these deductions first, which is where having a qualified accountant on your side really comes in handy.

A good accountant can either handle all of your taxes for you or simply give you the tools and education you need to do them yourself, providing you with advice and guidance along the way. In either scenario, you will find that your accountant is a huge help. Here are just a few of the things that a skilled accountant can help you with:

l  Completing a Schedule C for business taxes

l  Completing a Schedule C-EZ for business taxes (if you qualify)

l  Calculating self-employment taxes

l  Deducting expenses for your home office, if applicable

l  Deducting business expenses

l  Helping you to find and learn to use tax software

l  Providing general tax advice and answering questions as they arise

As you can see, an accountant can be a huge asset, so, if you are planning to be self-employed in the coming months or years, make sure you have an accountant you can trust and rely on. It will make a world of difference.

The Truth About Taxes

Have you ever wondered why we pay taxes? You’ve always known that you HAVE to, but have you ever actually wondered why? It’s pretty simple, really.   

As annoying as they may be, we pay taxes to help pay for the government services that we and other people receive. And, as you well know, we don’t have a choice in the matter. It’s the law.

Something else to know about taxes is that they are split into different types. First, you have federal taxes, which are made up of personal income taxes, payroll taxes, corporate taxes, and excise taxes and other types of taxes from the Federal Reserve.

Next comes state taxes, which come from the federal government, sales taxes, payments to state organizations, income taxes, state license fees, and corporate income taxes, to name a few.

Finally, there are local taxes which are collected from state government, federal government, property taxes, sales taxes, and fees for water and other amenities.

While that might seem like an awful lot of taxes and an awful lot of money you have to pay, your tax dollars are put to good use. Here are just a few of the things your tax dollars help cover:

l  Payments to senior citizens for Social Security

l  Defense

l  Medicare

l  Medicaid

l  Interest on the national debt

l  Government agencies, such as education, NASA, and more

As you can see, your tax dollars are going toward good things, even though it can be hard to see the good things when you’re worried about paying your tax bill.

Fortunately, you can still help to do good but also lower your taxes by taking advantage of the various exemptions available. There are also many other ways to help lower taxes, and the right accountant can help you with this. The bottom line is to do your part but also to save where you can with the right help.

Taxes that Affect Estates

We are all going to leave things behind when we die. And, if we plan carefully, those things can go to the people we want them to, like our family members and friends. However, it is important to remember that our estates are affected by certain taxes, and we need to be aware of and plan for those taxes if we want everything to ultimately go as we planned.  

Gift Taxes

One of the first taxes that can affect an estate is what is known as the gift tax. Federal law mandates that a person can not give more than $14,000 worth of gifts to a single person tax-free. Once that value amount is reached and surpassed, a gift tax comes into play.

Of course, there are ways around paying the gift tax. For example, there is a lifetime gift tax exemption of $5,340,000 that can help to offset taxable gifts and keep you from paying taxes out of your own pocket.

To learn more about gift taxes and related exemptions or if you’re concerned about how this tax will affect your estate, be sure to speak with a tax professional.

State Inheritance Taxes

Some states collect special inheritance taxes from the beneficiaries of a deceased person’s estate. These states include:

l  Iowa

l  Pennsylvania

l  Kentucky

l  New Jersey

l  Maryland

l  Nebraska

Fortunately, not all beneficiaries have to pay the tax. Surviving spouses of the deceased and reputable charities are exempt from the tax. Other exemptions are possible in some of these states as well, so it’s always best to check with your tax adviser if you have questions or concerns about possible taxation of your gift.

Tips for Estimating Taxes in Retirement

If you’re like most people, you’re probably looking forward to retirement. Make sure, however, that you’re not looking forward to it as a time when you won’t have to pay taxes. Unfortunately, contrary to popular belief, you do still have to pay taxes in retirement.

The fact of the matter is that life post-retirement and pre-retirement aren’t all that different, at least not in terms of taxes. Your taxes are still calculated based on your income. Of course, there will be some variations based on the type of income you have, but taxes still exist, no matter what.  

Since you know you will be subjected to taxes in retirement, it’s a good idea to start planning for them now, which you can do with just a little effort on your part.

IRA and 401(k) Withdrawals

Are you planning on living off of withdrawals from your retirement accounts? If so, then you can expect these withdrawals to be taxed as income. How much tax you’ll have to pay will depend on the amount you deducted and how much is counted as income, any deductions you take, and your tax bracket. Bear in mind, however, that these rules do not apply to Roth IRA withdrawals, which are tax-free.

Annuity Distributions

In retirement, many people count on annuity distributions as a source of income. Unfortunately, however, most annuities do have taxation rules attached. Immediate annuities, for example, count the interest portion you receive as taxable income. Fixed variable annuities, on the other hand, tax all withdrawals except withdrawals of your original contributions

Home Sales

In retirement, it is very common for people to sell their homes, making some money to live on in the process. Often, they don’t have to pay taxes on the money they earn. In some cases, though, taxation is required, such as when you earn more than $250,000 (if single) or more than $500,000 (if married).

As you can see, you could have quite a few taxes to think about come retirement time, depending, of course, on the types of income you have. As long as you plan ahead for these taxes- something you can do with the help of a tax professional- they shouldn’t be too hard to navigate, though, and you can get on with enjoying your retirement!

Everything You Need to Know about Estimated Taxes

As a business owner or as someone who is otherwise self-employed, you have a lot on your plate and a lot to keep track of. One of those tasks that you can’t overlook is making estimated tax payments to the IRS. If you fail do so, you may find yourself paying interest and penalties come tax time. As such, it’s important to make sure that you understand estimated taxes and what your responsibilities related to them are.    

The Basics

Just in case estimated taxes are a new concept to you, they are basically taxes on income that is not going to be withheld.

When you are self-employed or own your own business, you do not have someone to take out your federal income taxes and state taxes the way you would in a standard employee/employer situation. Thus, you are expected to pay estimated taxes on your income and on certain other forms of gain as required by the IRS.

Plus, not only do you have to pay taxes on your income, but you also have to pay the self-employment tax, which is a Social Security and Medicare tax.

Exceptions to the Rule

Of course, there are some circumstances in which you may not have to make estimated tax payments. If, for example, you meet all of the following requirements, you can skip estimated tax payments:

l  You were not required to pay taxes the year before

l  The last tax year covered a full twelve month span

l  You were a US citizen/resident for the entire previous tax year

If you are not sure how these exceptions apply to you or if they do, remember that it’s always best to check with a tax professional to be sure.

Paying Your Taxes

If you do ultimately determine that you have to pay estimated taxes, be aware that they are due four times each year. The first payment comes on April 15^th and covers your earnings from the beginning of January until the end of March. This is followed by a June 15^th payment (for earnings from April to the end of May), a September 15^th payment (for earnings from June through the end of August), and a January 15^th payment (for earnings from September through the end of December).

As payment time nears, make sure you have worked out any issues or concerns with a tax professional so that you can ensure your estimated tax payments are taken care of fully and correctly.

The Basics of Business Taxes

Whether you’re a new business owner, a soon-to-be business owner, or just someone who needs to brush up on the law, it’s important to have a clear understanding of the various types of business taxes that exist and which ones apply to your business.   

Most businesses pay federal, state, and local taxes. However, that’s where the similarities end. Different businesses pay different taxes based on things like what they sell, what their business structure is, and more.

Because business taxes are so complex, it’s highly advisable that you keep a few basic things in mind and that, when in doubt, you have a tax professional you can fall back on for help and advice.

How Business Type Affects Taxes

As mentioned above,the type of business you have will have an impact on the taxes you pay.

For example, you will pay taxes through personal income tax returns if your business falls into any of the following categories:

l  Sole proprietorship

l  Single member LLC

l  Partner in partnership

l  S Corporation

Even though all of these businesses pay their taxes via their own returns, how they have to go about it and which forms they need to fill out will vary from one business type to the next, further showcasing how important it is to have good, professional tax help.

Property Taxes for Businesses

Another thing that you will need to keep in mind is that, if your business owns any property, such as a store or other building in which business is conducted, you will need to pay property taxes.

The amount of taxes that you will have to pay will be based on the value of your property.

Self-Employment Taxes

As if there weren’t enough types of taxation already, you may need to also pay self-employment taxes. Typically, these taxes are required for sole proprietors, LLC owners, and partners and are based on the income that the business brings in.

As you can see, there are many types of taxes that you could be subjected to as a business owner- these are really just a few of many. As such, make sure that you are well informed on business taxes and that you are working with a professional who can ensure you handle all the taxes for your business correctly.

Want to Sell Online? Read this First!

These days, it seems like everyone is in need of a little extra money. And, more and more people are turning to online selling sites, such as Ebay and Etsy, to earn that money.  

 Getting those nice checks or Paypal funds from selling merchandise or handmade goods is certainly great, but remember, that money is subject to taxation too. If you forget that, you could face problems down the road. You could also face problems if you don’t figure your taxes correctly, which is why you need to know a few important things before you start (or continue) selling online.

To start off with, understand that if you are earning money, you absolutely have to report that money as business income. Not doing so could mean facing fines and penalties, so don’t take the chance.

Furthermore, you have to collect sales tax on your sales and also report any foreign sales that you have made.

Depending on the selling platform that you have chosen to use, you may have some help with these taxation matters. Amazon, for example, does require its sellers to complete an income tax identification form. Other sites, though, don’t report to the IRS and don’t keep track of your earnings, which means it’s up to you to handle your taxes legally and correctly.

The first step in doing this is typically to contact your state tax department to get set up to collect sales tax. Once you’ve done that, you need to keep careful records on each of your sales and your overall income.

If all of this sounds tricky and like a lot to keep up with, it’s because it is! However, doing everything “on the up and up” is definitely worth it since it will keep you from encountering troubling tax problems in the future. And, the good news is that you don’t have to figure all of this stuff out on your own. A qualified accountant can easily handle your tax issues for you or at least provide you with advice and guidance to help you do it on your own.

Thus, if you are planning to start selling online or to keep selling online but to do it legally, an accountant should be the very first person you contact.

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Understanding FICA Taxes

If you have a job, then there is a good chance that you have heard of FICA taxes since these are taxes that all people have to pay, like it or not. Employers withhold FICA taxes from your paycheck, which may leave you wondering what, exactly, these taxes are and where your money is going.

In basic terms, FICA taxes are Social Security and Medicare taxes. They are paid both by workers and employers.   

They are called FICA taxes because FICA stands for “Federal Insurance Contributions Act,” an act which has been around since the 1930s and has affected taxes ever since.

Now that you know what FICA taxes are, you may be wondering just how much they’re costing you. The answer, however, varies from person to person. The total FICA tax is always 15.3% of an employee’s gross income, with the employer and employee each paying half or 7.65%.

Of course, not all funds that you earn are going to be taxable under FICA. Social security wages, for example, are exempt from FICA taxes. If you have concerns about what is and is not exempt in terms of your wages, you can speak with your employer or with a financial adviser to ensure that everything is being handled correctly.

Sometimes, employers do accidentally deduct too much in FICA taxes. When this happens, you are entitled to a full refund of the overage, and this money will not be taxed or treated as income since you should have already received it. You should talk with your employer if you believe too much was accidentally withheld from your pay for FICA taxes.

As you can see, FICA taxes, by all accounts, seem to be here to stay. Make sure yours are being handled correctly and fairly by working closely with your employer and, ideally, also having a tax adviser of your own on the side.

Taxation in Illinois

Illinois is a beautiful state to call home. Unfortunately, however, it is also a state where taxes tend to be on the high side. There are, for example, higher taxes on cigarettes and soda than you’ll find in other states. While there’s not much you can do about these taxes, you can, at least, educate yourself on them so that you won’t get taken by surprise.   

Property Taxes

Property taxes exist in Illinois as they do in other states. One nice thing about property taxes in Illinois, however, is that the money paid goes right back into local municipalities, with a lot of money being used in school districts.

When you pay property taxes, you pay a year after the property has been assessed. Assessment occurs at 33.33% of the property’s market value. The only difference is with farmland, which is assessed based on its potential to earn income.

You should be aware, however, that there are many exemptions available that can help you to save on property taxes, so it’s definitely smart to work with a tax professional in an effort to save as much as you can.

Income Tax

In the state of Illinois, you’ll find that your income tax is not levied based on income level. Instead, everyone is subjected to a 3% levy.

However, you can enjoy a deduction of $2,000 for each exemption you claim, and you can also get another exemption of $1,000 if you or your partner is at least 65 years old, is blind, or both.

Fuel Tax

Gasoline taxes also exist in Illinois. You can expect to pay 39 cents in tax for every gallon of unleaded fuel you purchase. Diesel, on the other hand, has a tax rate of 41.7 cents per gallon.

There are some exceptions to these rules, though. For example, Chicago and all of Cook County add an extra 5 to 6 cents in tax for fuel.

As you can see, there are a lot of  taxes that exist in Illinois, but if you are prepared for them and have a good accountant to help you catch a break where you can, they shouldn’t cause you too many problems.

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Tax Deductions for Start Ups

Starting a new business is exciting, but it can also be incredibly challenging and expensive! Fortunately, though, there are a lot of business deductions available that can really help all those start-ups out there to save money and to get through those first few years.   

The most common types of tax deductions that can benefit start-ups are those that apply to “ordinary” and “necessary” business expenses, simply meaning costs incurred that any other business in the same industry would also incur. Some items that fit this description and that qualify for deductions include:    

l  Equipment purchased for normal operation

l  Home offices

l  Transportation expenses incurred traveling from one business location to the next

For true start-ups that don’t even have these types of expenses yet, there are still deductions available. In fact, many of the costs that are associated with starting a business can be deduced through amortization, such as:

l  The costs of a business property

l  The cost of researching a business site/location

l  The costs of market research

l  The costs of product analysis

Of course, as is always the case with the IRS, there are certain restrictions and eligibility requirements attached to each possible deduction, so don’t just assume you qualify for something without doing your research.

With that said, though, the absolute best way to ensure that your blooming business gets all of the deductions for which it can qualify and that it comes out on top is to hire a professional financial adviser who can help walk you through the process and get your business off the ground and running.

The Basics of Business Expenses

Every business has expenses. The good news, however, is that many of these expenses can be deducted, thereby lowering a business’s taxes. If you run a business, then you’ll definitely want to educate yourself on what qualifies as a deductible business expense. That way, you can safely get all the deductions available to you and benefit from them as well!  

Business Expenses Defined

Business expenses can be defined as anything that is an “ordinary and necessary” expense for your business. Basically, if you have to have something for your business and everyone else in your line of work does and would too, then it probably counts as a business expense.

However, what type of business expense it qualifies as and whether or not it’s deductible is dependent on a few different factors, which is why it’s always best to have a tax professional look over and handle your business expense deductions to make sure you’re doing everything correctly.

Business Expenses Vs. Personal Expenses

One of the things that you really have to be careful of is keeping business expenses and personal expenses separate. Of course, this can be hard when an expense is….well…kind of both. When you have a home office, for example, you have to go through some major steps to figure out which “percentage” of your home the offices takes up and, thus, how much you can deduct for related business expenses.

It can get pretty crazy trying to separate the two, which is another reason why a qualified financial adviser is such a great tool to have on your side. In fact, when it comes to separating business and personal expenses appropriately and ensuring that you get as many deductions as possible, there is no better resource than a financial adviser.

The 6 Forms of Business Organization

Whether you’re in the process of starting a business or still in the “dreaming” stages, it is important for you to know and understand the different types of business organizations. These include:

l  Sole proprietor

l  Non-profit organization

l  C-Corporation

l  Trust

l  S-Corporation

l  Partnership

So, now you may be wondering what each type means and which one you should choose. While only a qualified tax professional can advise you on what the best setup for your business would be, here is some helpful information to help you understand the different options.  

Sole Proprietors: Let’s start with sole proprietors. These are unincorporated or “independent” businesses. To start this type of business, you don’t have to fill out any fancy paperwork. You simply report your income and expenses using Form 1040 Schedule C, and you’re all set!

Non-Profit Organizations: These entities are unique in that they are not formed to make money but, instead, to a aid a charitable or civic purpose of some sort. These types of businesses are exempt from taxation, though they do have to report their activities and other information to maintain their status.

C-Corporations: C-corporations are incorporated businesses with shareholders who enjoy limited liability protection. These organizations do make money and are subject to taxation.

Trusts: Trusts are created, more often than not, when someone passes away and his investments and business activities are passed on and continued.

S-Corporations: These corporations have no more than 100 shareholders with limited liability protection and, like c-corporations, they are subject to taxation, and they operate for profit.

Partnerships: Finally, partnerships are unincorporated businesses that function separately from their shareholders. They have at least one general partner and at least one other partner. The general partner has unlimited liability.

So, there you have it- the six different organization options. Of course, the type of business you are planning on opening will dictate which options are actually available to you, but you can find out what your choices are and get advice on setting up your business accordingly by visiting with a financial adviser before you get your business up and running!

Trump and Single Parents

President Trump has talked a lot about making quite a few changes in how America does things. Many of these changes are going to have an impact on single parents, so if you’re in that category or know someone who is, it’s important to educate yourself on these changes and what they could mean for the single moms and dads of America.   

Changing Tax Brackets

First things first, expect to see a change in tax brackets. In case you’re not familiar with the term, tax brackets refer to the percentage of your income that you pay in taxes.

President Trump wants to condense the seven tax brackets we currently have into three tax brackets, which many think will end up raising taxes big time, especially for people who count as “head of household,” which includes, of course, many single parents.

Elimination of Personal Exemptions

Trump may also try and get rid of personal exemptions, which are responsible for reducing your earnings and, thereby, your tax bracket.

A great many single parents out there qualify for several personal exemptions that help keep their taxes low, but, if these are eliminated, it could mean higher taxes for many single parents.

A New Child Care Deduction

Another change that Trump is considering is a new deduction that would allow parents to subtract childcare costs from their incomes for up to four children.

This deduction would be very helpful for many single moms and dads as it could lower their adjusted gross incomes.

As you can see, Trump has a lot of changes in the works- these are really just a few. If you’re concerned about how some of these changes might affect you or if you have questions, remember that a tax professional is always the best person to turn to, especially in these ever-changing times.

Personal Property Tax Deductions

If you’re like most people, then you probably hate paying your property taxes. However, it’s not all bad! Believe it or not, you can deduct the taxes you’ve paid as an itemized deduction when filing time comes around.  

Of course, as with anything through the IRS, there are certain eligibility requirements that your property tax or taxes must meet in order to qualify. Fortunately, though, they’re pretty basic. You can generally deduct the tax as long as:

l  It is based on the value of the property

l  The tax is imposed annually

l  The tax is imposed on personal property

This does mean, unfortunately, that you can’t deduct business property, at least not under the personal property tax deduction umbrella. There is, however, a way to deduct business property taxes and most other types of property taxes as well. The right attorney can walk you through how to deduct taxes, when possible, for a variety of different scenarios.

So, if you’re feeling confused about the personal property deduction or want to inquire about other possible deductions for which you may qualify, don’t hesitate to contact a tax professional. These people can help you find every possible deduction to save you as much money as they can, which can really make a huge difference come tax time!

Adjustments to Income

If you’ve paid taxes a few times in your life, then you have probably heard of “adjustments to income,” which are also commonly referred to as “above the line deductions.” Basically, these are adjustments that you can take on the first page of your tax return. If you’re unsure about which adjustments to take, don’t guess! Get a tax professional to help you.  

While everyone is different and will qualify for different adjustments, some are certainly more common than others. If you’re like the average taxpayer, then it is very likely that you will qualify for one or even several of the following very common adjustments to income:

l  SEP-IRA, Simple IRA, and 401(k) deductions for the self-employed

l  Tuition and fees deduction

l  Student loan interest deduction

l  Early withdrawal penalties

Again, never guess or assume when it comes to these adjustments. Always make sure you are actually eligible for the adjustments you are claiming and that you factor them into your taxes properly! The best way to do this is with the help of a tax professional.

Also, make sure that you provide your tax professional with details about you, your job, and your overall life situation since, sometimes, different factors can make you eligible for other, less common deductions. Some less common types of adjustments to income that can sometimes be claimed include:

l  Classroom expenses for educators

l  Moving expenses

l  Alimony paid

l  Self-employment health insurance and half of the self-employment tax

l  Qualified performing artists and other professions

l  Domestic production activities deduction

These are just a few of many possible adjustments to income; a tax professional can help you to find all of the ones that apply to you and, even more importantly, can help you to use these adjustments to income to your benefit, so don’t delay in seeking professional assistance!

New IRS Tax Fraud Laws

Most people think of the IRS as being this “perfect” federal body that is incapable of making mistakes. However, that’s not necessarily true! In fact, recently, the IRS accidentally sent out a large number of refunds to people who had been flagged for possibly having fraudulent returns. This was all due to a computer glitch, but, regardless, the mistake got the IRS to crack down on tax fraud and invent some new laws related to it.

These laws were passed under what is known as the Protecting Americans from Tax Hikes (PATH) Act. The Act went into effect for taxpayers in 2016 , and it’s important to understand the related laws and how they might affect you.   

Tax Credits

First of all, the PATH act has made it so that two refundable tax credits, the Earned Income Tax Credit and the Additional Child Tax Credit, are delayed. Since these credits are very vulnerable to fraudulent filing, the IRS now takes the extra time to ensure only those who are truly entitled to these credits receive them. So, if you’re banking on these credits, don’t be surprised if you receive them a little later than usual.

Individual Taxpayer Identification Numbers

Another change that the act has brought about relates to people who do not have social security numbers and who, instead, have individual taxpayer identification numbers (ITINs). These people now have to face the fact that their ITINs become invalid if they don’t use them to file a return within three years. Those whose ITINs become invalid will have to renew their numbers through the IRS before they can use them again

The Security Summit Initiative

Finally, you should know that the IRS has partnered with major tax companies to reduce the risk of identity theft via taxes. Under measures known as the Security Summit Initiative, the IRS has made it a whole lot harder for thieves to steal the information of taxpayers. You’ll likely notice these effects by more stringent password requirements, extensive identity checking, and getting locked out of your account when you enter wrong information on tax related sites.

As you can see, the IRS isn’t taking any chances when it comes to identity theft! And, while some of the changes that have been implemented may cause small annoyances in your life, remember the IRS is doing it all for your own good!

IRS Statute of Limitation Laws

The IRS has laws and rules in place for just about everything. In fact, there are even laws about when things have to be done. For example, the IRS has three years to audit a tax return someone has filed and ten years to collect on owed taxes. These are just two of many statutes of limitations that the IRS imposes. To learn about these and other statutes and how they might affect you, read on!  

Claiming Refunds

First things first, you should be aware of just how long you have to claim and collect a tax refund. Basically, you have three years from the date of your original tax deadline or two years from the day the tax was paid. The later one is the one that will apply to you, which works in your favor!

Getting Audited

As mentioned earlier, when you file a tax return and don’t get that dreaded audit notice, don’t breathe a sigh of relief just yet. The IRS has three years to audit your return dating from the day you actually filed or, if you filed early, the actual due date of your tax return. However, there are some exceptions to the audit rule. If you are guilty of omitting more than 25% of the total income reported on your taxes or have undisclosed foreign financial assets totaling more than $5,000, the IRS has six years to audit you. And, in cases of fraudulent filing, there is no statute of limitations to protect you!

Outstanding Debts

Once tax liability becomes finalized, the time starts ticking in terms of how long the IRS has to collect on the money you owe. The organization has ten years to collect on your debt, and, if it doesn’t, the statute of limitations expires and you’re off the hook!

As you can see, there are all kinds of time-sensitive laws and rules held by the IRS. If you’re concerned about how some of these laws might affect you, remember you can always ask a tax professional for advice!

The Basics of Back Taxes

Not filing your taxes is one of those “cardinal sins” that we’re all taught not to commit. However, life and circumstances can and often do get in the way, which can lead to not having filed your taxes in a year or even several years. If you are in this situation and aren’t sure what to do, take a deep breath and try to relax. There is a way out, and often, that way simply begins with filing your tax returns. 

Do a Little Backtracking

The easiest way to make a fresh start, surprisingly, is to go back a little. Get your tax return from the last time you filed your taxes. Whether you still have the information available or you have to request tax documents from the IRS or former employers, the key is to gather old data that will be useful to you as you file current returns and figure out what you need to catch up on.

Catch Up

Once you’ve got the old information you’ll need, it’s time to dig into the new. File tax returns for the current tax year. While you can do it yourself, you’re much better off using a tax professional who can help you to file your returns and make sense of any back taxes that you may owe. If you have even the slightest doubt about handling your taxes on your own or if you just want to be sure you do everything right, remember that a professional is always your best bet.

Pay off Debts

If it turns out that you do owe the IRS money once you’ve filed, come up with a plan to pay them back. You may be eligible to sign up for a payment plan or to ask for a special offer in compromise. Your tax professional can be helpful in explaining the different options to you and in helping you to find the best one to meet your needs.

Once you’ve got your back taxes sorted out, the key is to work with your tax professional to make a viable plan for the future so that you never find yourself in this type of situation again.

Refundable Tax Credits

Most of the time, when you think about taxes, you think about paying them…not about having the IRS give you money. Sometimes, though, you can be paid by the IRS in the form of what is known as a refundable tax credit. This is a type of tax credit that is basically a payment. You may end up receiving one if the total of all of your payments is more than your total tax liability. When that happens, the IRS will give the remaining amount to you, the taxpayer.  

You will know if you have a refundable tax credit because it will show up in the payments section of IRS Form 1040. If a credit is nonrefundable, then it will be in the Tax and Credits section of the form. This is an easy way to tell the two apart.  

If you do have a refundable tax credit, you can use it in a variety of ways. One of the smartest ways to use it is to offset types of taxes that could not be reduced otherwise. Some examples of these types of taxes include:

·         The self-employment tax

·         The nanny tax

·         The surtax on early distributions of retirement savings

·         Net investment income tax

·         Additional Medicare tax

Obviously, a refundable tax credit can be a really good thing that can work in your favor. So, what counts as a refundable tax credit?  While there are some variations based on your specific situation, the following can usually result in refundable tax credit:

·         Credit for federal income tax withheld

·         Up to 40% of the American Opportunity Credit

·         Credit for estimated tax payments

·         The earned income credit

·         Credit for extension payments

·         The premium assistance tax credit

·         Credit for excess Social Security withholding

·         Credit for excess Social Security tax withheld

·         Credit for federal taxes on fuels

·         The health coverage tax credit

·         Credits from Form 2349

If you are curious about whether or not a refundable tax credit is coming your way or you want to use credits that you have already received in the best possible way, be sure to speak with an accountant. If used correctly, you can really do a lot of great things with and through your refundable tax credits.