Well Tax time is here, and if you have ever had to tussle with the IRS you know how dangerous that can be! We asked my friends at McClure and Stewart to swing in the studio and help all of the Rock Family navigate tax season. Here is some of the advice and listen to the whole break down below!! If you just want to get some help dial #250 on your cell and say "TAX PROBLEMS" when prompted. That will connect you right away.
Tips and pointers:
W-2 wage earners
1. Use a CPA. If you're not filing a basic 1040 EZ you should be using a CPA. Yes you'll pay a couple hundred dollars for each year you file, but you will easily get that back using someone that knows the ins and outs of the tax code. The digital options don't give you the kind of guidance that a CPA has. You will be entering stuff into boxes, thinking you know what the app is asking for, but might be reading it wrong. With a CPA, it is literally their job to know and use the tax code every day, and you'll get audit support that is far and away better than a digital firm.
2. If you are a W-2 earner and have more than one job, you need to up your withholdings. The goal at the end of the year is to owe zero or get a little bit back, we don't want to be paying the government thousands of dollars in April. If you have multiple jobs the W-4s that you file don't report to one another. So, if you're earning $35k at one job and $15k at another, the two don't properly account for the fact that you're in a new tax bracket. You will have to estimate about how much more you'll be making and account for that in your withholdings. You will make a little less each paycheck, but it's much better than an unfortunate April surprise.
3. Don't let IRS problems snowball. If you owe a couple thousand for one year, don't let it turn in to the annual nightmare where you know you need to file but you don't. Those years pile up very quickly and the penalties and interest are devastating. The IRS assess you with 2 penalties right out the gate and then tack on 5% interest each month. The quicker you start down the road to fixing the problem the better the outcome will be.
Business owners 1099s
1. You need to pay your estimated quarterly taxes. The IRS considers a 1099 a sole proprietor, as such, they are required to pay self-employment taxes, and those taxes are hefty. If you make the estimated quarterly payments it will do things, save you from penalties and interest and keep you from a staggering lump-sum-payment at the end of the year. If you are a 1099 earner and you make more than $40,000.00 a year you need to consider restructuring your business as an S-corp. Being an S-corp will save you thousands of dollars in taxes. The tax code is written to save businesses money, and you should take full advantage.
2. If you’re a 1099 that uses a car for business, track your mileage. The IRS allows for a tax deduction for mileage at 57.5 cents/mile starting in 2020. Those miles add up fast and you should account for that deduction. There are several user friendly apps that can help you keep track. If you are already using quickbooks, there a mileage function in that app. If you don't pay for quickbooks, another option is MileIQ, Hurdlr, or Triplog. It doesn't really matter which app you use, just use it and save yourself some money.
3. **DO NOT TOUCH THE TRUST FUND** If you are a small business owner with w-2 employees, you are responsible for paying for your employees income tax, Medicare tax, and social security tax. Those taxes are referred to as the trust fund, because you hold them in trust for your employee until you pay it to the IRS. You CANNOT dip into those funds to make ends meet. The IRS looks on that activity as stealing because it was never your money to spend, and the criminal and civil penalties are no joke. Trust fund penalties will be imputed to the business owner, so even if you file to close you business, you are still personally on the hook for those taxes. Use a payroll service that will keep track of a trust fund for you, or if you go it alone, put the trust fund in its own account, but no matter what, DO NOT TOUCH THE TRUST FUND.
If you owe the IRS $10k or more get a tax professional to help you. There are so many loopholes in the tax code, which is always changing, that fixing the problem yourself can be a big mistake. You could miss out on thousands of dollars in discounts or workarounds. IRS representatives are looking to collect as much as they can from a tax payer and have no interest in telling you about a workaround. At McClure and Stewart we know the tax code better than the IRS. On a daily basis, we cite those rules to the IRS representatives and make them honor the discounts available to our clients. You shouldn't have to pay more, and we make sure you don't.
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