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As we hurry to get all our paperwork into the tax accountant, keep in mind, the laws approved recently have made "detail accounting" more important than ever. The IRS has stepped up the detail process, looking for your incorrect or "mistakes" in 2007.
Of course, our friends in Washington are spending dollars faster than the government can make it. The 12 billion dollars per day spent for the war is not helping the economic issues at home. Basic economics 101 or "checks and balances" shows the picture most Americans are dealing with...economic squeeze.
So, this gets us back to the aggressive, close look the IRS will be initiating for this tax year. First, once your tax information is submitted to the IRS, you'll qualify to receive the tax incentive in May or early June. If your single, you should receive $600.00 and for couples, $1,200.00. Then agents will scan each of our taxes and determine we're qualified for certain deductions listed on the tax return and approve or in some cases reject the bottom line. If the IRS feel you've entered deductions that are not qualified, the probability is pretty good that you'll get audited.
If you fall into a category and get audited, make sure you have all paperwork to back up your claims. Many people choose a tax company to prepare their forms and submit electronically. Remember, that person or company you've chosen to do the work is responsible and should join you (at no additional cost) if the IRS comes a knocking!
Now, that the taxes are filed, look at the copy of your '07 tax return and do some "house cleaning" by getting yourself organized for next year. If you have questions email me at Nancy@motionpicturecompany.com and I try to help you through the process. Happy Tax Return!
END OF YEAR...GET EVERYTHING IN ORDER
Every year-end is exciting as we prepare for the new, but with the new year will come a little bit of organization with all the paperwork. Get all your documents together so you don't miss any deductions that may be available to you in 2008. Some tax laws and deduction percentages have changed, its important to have all the paperwork so your tax advisor can do their job. If your information is on a hard drive or plain old fashion paper, make sure you have all back ups ready for tax time.
Most of you will be getting your W-2 or 1099 forms from companies you've work with over the last year. Companies try to get these documents out as soon as they become available and printed. Keep in mind, the law requires companies to send them out no later than the end of Janurary. If you have all your paperwork and potential deductions together, it should be a breeze when you receive the forms. Keep everything orderly and give your tax advisor a call to set your appointment.
This year, because of late changes in the tax law many refunds may be delayed! Last year the IRS reported an average refund of $2,324.00, so...don't "leave money on the table". Also, the IRS is reporting that a computer reprogramming and update of systems may effect some 13.5 million people who may have to wait until February 11 to start filing.
My advise, get your paperwork together early and don't wait for April before you have that meeting with your tax advisor. Start 2008 with everything in order and you'll be ready to get the job of income tax off your "To Do List", Happy New Year.
EXTENSIONS, FORMS AND OUR PAL'S...IRS.GOV
Hopefully, you've filed your tax return for 2006! If not, the extension you filed will expire August 15. If you've filed the extension and will not be able to file your return by August 15, you may request a second extension utilizing Form 2350. (You must have filed the original extension, Form 4868, in order to request the second extension.) The request for a second extension must be filed no later than August 15. This extension is not automatic, you must state a reason for request. The IRS will reply in writing, advising if the extension is granted. It is suggested that you discuss this situation with your tax accountant.
Although you filed your tax return and received your refund or paid taxes due, you may realize that you made a mistake on the return. The most common errors are under reporting of income, or not taking deductions to which you are entitled. You may amend your return within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.
If you need to amend your return you'll need to file a Form 1040X. This form will show the original figures reported, the corrected figures, and the net difference. Any additional forms prepared will need to be attached. You will need to explain the reasons for the changes. Be certain to enter the year of the return you're amending. This form must be mailed to your serving center for processing...do not file an amended return until thirty days after the original return has been processed by the IRS. It normally takes eight to twelve weeks for amended returns to be processed.
Deductions commonly overlooked include:
Mileage deductions: Remember: commuting to and from work is not deductible as an employee. However, job search, going to union or referral halls may be, as well as going from your first job to a second job in the same day.
Meal allowances: Meal expenses are only deductible if your trip is overnight or long enough that you need to stop for sleep and/or rest in order to properly perform your work. The amount must be substantiated, or you can usually use the standard meal allowance. This amount varies, depending on when and where you are traveling. (Per Diem rates can be found in the IRS Publication 1542.) Additionally, international Per Diem rates are available. The Per Diem rates will also list the maximum allowable lodging rates for the area.
Another overlooked deduction is a tax credit for hybrid vehicles purchased after January 2006. This credit is only available to the original purchaser of the new, qualifying vehicle. The credits available are listed by model and year at the Internal Revenue Service web site. The amount varies based on type and year of vehicle.
Now is the time to start organizing your receipts, etc. for filing your 2007 taxes. It will make the last minute crunch less grueling. If you are traveling this summer, it may possible that part of your trip could be tax deductible. Are you seeking employment, relocating, or doing research for a project? Are you on a short term project? If so, then some of the expenses may be deductible.
Organize your papers now. Schedule a meeting with your tax accountant or advisor to discuss your individual needs and or questions. You may also need to change your W-4 to reflect increases or decreases in income. You may need to make estimated tax payments. Meeting with your tax accountant now will save you time, stress, and money when 2007 arrives.
It is recommended that you visit IRS.gov website to view hybrid vehicle credits, Per Diem rates, mileage rates, forms and other valuable information that you may to bone up on...have a great summer!
INDEPENDENT CONTRACTOR OR EMPLOYEE
Many companies issue 1099s to persons at year end. If the company exercised control over your activities you may be an employee. If the company merely gives you the guidelines to produce a finished product which they then accept or reject you are probably an independent contractor. If the company provides the materials, tools, place to work and the methods and means to do it, then you are an employee. If indeed you are an employee income taxes, Medicare and social security, and in some states unemployment taxes must be withheld from your wages. Additionally, the employer must match the Medicare and social security taxes withheld. He must pay into unemployment on your behalf. Classifying you as an independent contractor or freelancer can save the company a lot of money.
You will typically be told that you are not covered by workmen’s compensation if you are injured. As a general rule this is no longer true. Unless the company has a copy of your certificate of insurance on file, they are responsible for your workmen’s compensation insurance, even if they 1099 you. This was one of the primary reasons for issuing 1099s. With this loophole gone, more and more companies are treating these freelancers as employees. In the final analysis freelancers are simply persons who have multiple employers for the duration of a project. An independent contractor is one who works independently, wherever he wishes, using his own tools, etc. and at his own pace to complete an end product that is then subject to the company’s acceptance or not.
If you are paid during the year as a freelance independent contractor, be aware that you may have a tax liability at the end of the year. I encourage my clients to either make estimated tax payments quarterly or set aside monies for year end. Typically, you should expect to owe at least 20%. You must pay self employment taxes, currently 15.3%, as well as Federal income tax on your net profit. When reporting 1099 income on your tax return you will need to complete a schedule C.
On your schedule C you will deduct the expenses associated with producing the income, Items would include materials, office supplies, occupational licenses, insurance fees, advertising. This is not a complete list. You need to discuss this with you tax specialist to insure that you compile accurate and complete records. Mileage is also computed using different criteria than were you an employee.
You may also be able to deduct expenses for an office in your home. This is no longer a “red flag” for possible IRS audit. Because of company down-sizing, outsourcing of work or convenience more and more taxpayers do work from their home. The IRS is aware of this and no longer targets this area.They do look at companies that report excessive 1099 expense.
If you believe that you are an employee, not an independent contractor, you can file a SS-8 with the IRS. This form asks questions concerning the worker’s duties, employer supervision and wage. It will then make a ruling. If you are deemed to be an employee, the company may be liable for paying your taxes, as well as being fined and levied penalties.To learn more on this and other subjects and to down load forms, visit the official IRS site at www.irs.gov.
Maintain an ongoing dialogue with your tax specialist. They are there for you.
CHOO$ING A TAX PREPARER
If you're like most taxpayers, you are entitled to numerous deductions that will reduce your tax liability. The laws, research time and ability to understand entries to be made can be overwhelming. It is usually wiser and more cost efficient to hire a professional tax preparer to prepare your tax return. Choose the preparer wisely.
A Paid Preparer is required by law to sign the return and complete the preparer areas of the return. This will include their name or firms name, identification number and signature of the preparer. They will give you a copy of the return. Review the copy thoroughly checking that the security number (s) of taxpayer(s), address, and other information is correct. If the Third Party Authorization is checked on the Form 1040, you are allowing the preparer to speak to the IRS concerning how your return was prepared, payment or refund issues and any mathematical errors. Most taxpayers will designate the preparer to be a third party since the preparer can usually resolve any errors or questions quickly and efficiently. This designation does not empower the preparer to negotiate or obligate the taxpayer. He may only discuss how the return was prepared. If you wish them to be able to go into detail you will need to file a Power of Attorney with the IRS. You will need to discuss this with your preparer.
It is important that taxpayers find a qualified tax professional if they need help preparing and/or filing their tax returns. Unqualified preparers may overlook legitimate deductions or credits causing the taxpayers to pay more tax than they should or even incur penalties, interest due to costly mistakes.
Considerations when hiring a tax professional should include:
1. Determine the Preparer's credentials meet your needs.
2. Know who will do the actual preparation of your return. Many times the work is delegated to someone with little training.
3. Be certain that the preparer will be available to answer any questions and be responsive to your needs.
4. You should avoid preparers who claim that they can obtain large refunds for you.
5. Beware of preparers who guarantee results and base their fees on a percentage of the refund amount. A preparer cannot charge a percentage of your refund for preparing an original return. If the return looks “too good to be true” it probably is.
6. Unscrupulous tax return preparers do exist. They can cause considerable financial and legal problems for clients. Participating in an illegal scheme to avoid paying taxes can result in imprisonment and fines, as well as repayment of the taxes owed with additional interest and penalties.
7. Most tax preparers are professional honest and provide excellent service to clients, but check them out before you turnover your financial documents.
REMEMBER: TAXPAYERS ARE ULTIMATELY RESPONSIBLE FOR THEIR TAX RETURN EVEN IF PREPARED BY SOMEONE ELSE.
To request additional information email Nancy at