• Can’t Pay Your Tax Liability?

    13 April 2017
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    Can’t pay your tax liability for 2016? We have the information you need to know:

    First, do not let your inability to pay your tax liability in full keep you from filing your tax return on time. If your return is not on time, you must still pay the “failure to file” penalty, which accrues at a rate of 5% per month on the amount of tax that you owe based on your return.

    If in doubt, you can delay the “failure to file” penalty for six months by filing an extension, but this still won’t keep you penalty free.

    Although an extension provides you with more time to file your actual return, it is not an extension of your payment date. If you do not pay the balance of your 2016 tax liability, you will be subject to the “failure to pay” penalty. This penalty accrues at the rate of 0.5% per month or partial month (up to a maximum of 25%) on the amount that you owe based on your return.

    If both penalties apply, the “failure to file” penalty drops to 4.5% per month or part thereof, so the total combined penalty remains 5%. The maximum combined penalty for the first five months is thus 25%. Thereafter, the “failure to pay” penalty will continue to increase at 1/2% per month for 45 more months (up to an additional 22.5%). Thus, the combined penalties can reach a total of 47.5% over time. Both of these penalties are in addition to the interest charges on the late payments.

    The bottom line is that, if you owe money, it is best to file your return on time even if you can’t pay the entire liability. That will minimize your penalties. Paying as much as you can with your return will further minimizing your penalties. By the way, neither the penalties nor the interest are tax-deductible.

    Possible Solutions – The following are possible ways to pay your tax liability when you don’t have the funds readily available:

    • Relatives and Friends – Borrowing money from family members or close friends is often the simplest method to pay a tax bill. One advantage of such loans is that the interest rate will probably be low; however, you must also consider that loans of more than $10,000 at below-market interest rates may trigger tax consequences. Any interest paid on this type of loan would be nondeductible.
    • Home-Equity Loans – A home-equity loan is another potential source of funds; such a loan has the advantage that the interest is deductible as long as the total equity loans on the home don’t exceed $100,000. However, in today’s financial environment, qualifying for these loans may be too time-consuming.
    • Credit or Debit Cards – Using your credit card to pay your taxes is another option. The IRS has approved three firms to provide this service. The disadvantages are that the interest rates are relatively high and that you must pay the merchant fee (because the IRS does not). For information about this fee and about making payments by credit card, visit the IRS website.
    • Installment Agreements – You can request an installment arrangement with the IRS. You must be up-to-date when filing your returns. There are also fees associated with setting up an installment agreement, and if you do not follow some strict payment rules, the agreement can be terminated. If your liability is under $50,000 and you can pay off the full liability within 6 years, you will not be required to submit financial statements, and you can apply online. When applying online, you’ll get an immediate acceptance or rejection of your payment plan.

    The fee for establishing such an agreement can be as high as $225, but it can be as low as $31 if you set up an online payment agreement and pay using direct debit from your bank account. You will also be charged interest, but the late-payment penalty will be half of the usual rate (1/4% instead of 1/2%) if you file your return by the due date (including extensions).

    If any of the following occur, the installment agreement may terminate, causing all of your taxes to become due immediately: the information you provided to the IRS in applying for the agreement proves inaccurate or incomplete; you miss an installment; you fail to pay another tax liability when it is due; the IRS believes that its collection of the tax involved is in jeopardy; or you fail to provide an update regarding your financial condition when the IRS makes a reasonable request for you to do so.

    • Pension Plans – Tapping into one’s pension plan or IRA should be a very last resort, not only because it degrades your future retirement but also because of the potential tax implications. Generally, except for Roth IRAs, the funds in retirement accounts are pretax; as a result, when withdrawn, they become taxable. If you are under 59½, any such distribution will also be subject to the 10% early-withdrawal penalty. Federal tax, state tax (if applicable), and this penalty can chew up a hefty amount of the distribution, which may be too high a price to pay.

    A Final Word of Caution – Ignoring your filing obligation only makes matters worse, and doing so can become very expensive. It can lead to the IRS collection process, which can include attachments, liens or even the seizure and sale of your property. In many cases, these tax nightmares can be avoided by taking advantage of the solutions discussed above. If you cannot pay your taxes, please call Dagley & Co. to discuss your options.

     

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  • April 2017 Business Due Dates

    3 April 2017
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    April is a busy month for business owners, accountants, accounting departments, CFOs and more. As Tax Day is quickly approaching, plan out your month in advance with these business due dates:

    April 18 – Household Employer Return Due

    If you paid cash wages of $2,000 or more in 2016 to a household employee, you must file Schedule H. If you are required to file a federal income tax return (Form 1040), file Schedule H with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 to household employees. Also, report any income tax that was withheld for your household employees. For more information, please call this office.

    April 18 – Corporations

    File a 2016 calendar year income tax return (Form 1120 or 1120-A) and pay any tax due. If you need an automatic 5-month extension of time to file the return, file Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, and deposit what you estimate you owe. Filing this extension protects you from late filing penalties but not late payment penalties, so it is important that you estimate your liability and deposit it using the instructions on Form 7004.

    April 18 – Social Security, Medicare and Withheld Income Tax

    If the monthly deposit rule applies, deposit the tax for payments in March.

    April 18 – Corporations

    The first installment of 2017 estimated tax of a calendar year corporation is due.

    April 18 – Partnerships

    Last day file 2016 calendar year fiduciary return or file an extension.
    Contact Dagley & Co. with any questions, or if you’d like to schedule your last-minute tax refund meeting.

     

     

     

     

     

     

     

     

     

     

     

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  • April 2017 Individual Due Dates

    31 March 2017
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    April is an important month for many as tax season comes to a close. If you have not filed your tax returns, please reach out to Dagley & Co. and we can set up a one-on-one appointment before Tax Day on April 18th. Here are all your important individual due dates for the month of April:

    April 1 – Last Day to Withdraw Required Minimum Distribution

    Last day to withdraw 2016’s required minimum distribution from Traditional or SEP IRAs for taxpayers who turned 70½ in 2016. Failing to make a timely withdrawal may result in a penalty equal to 50% of the amount that should have been withdrawn. Taxpayers who became 70½ before 2016 were required to make their 2016 IRA withdrawal by December 31, 2016.

    April 10 –  Report Tips to Employer

    If you are an employee who works for tips and received more than $20 in tips during March, you are required to report them to your employer on IRS Form 4070 no later than April 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

    April 15 – Taxpayers with Foreign Financial Interests

    A U.S. citizen or resident, or a person doing business in the United States, who has a financial interest in or signature or other authority over any foreign financial accounts (bank, securities or other types of financial accounts), in a foreign country, is required to file Form FinCEN 114. The form must be filed electronically; paper forms are not allowed. The form must be filed with the Treasury Department (not the IRS) no later than April 15, 2017 for 2016. An extension of time to file of up to 6 months may be requested This filing requirement applies only if the aggregate value of these financial accounts exceeds $10,000 at any time during 2016. Contact our office for additional information and assistance filing the form or requesting an extension.

    April 18 –  Individual Tax Returns Due

    File a 2016 income tax return (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic six-month extension of time to file the return, please call this office.

    Caution: The extension gives you until October 16, 2017 to file your 2016 1040 return without being liable for the late filing penalty. However, it does not avoid the late payment penalty; thus, if you owe money, the late payment penalty can be severe, so you are encouraged to file as soon as possible to minimize that penalty. Also, you will owe interest, figured from the original due date until the tax is paid. If you have a refund, there is no penalty; however, you are giving the government a free loan, since they will only pay interest starting 45 days after the return is filed. Please call this office to discuss your individual situation if you are unable to file by the April 18 due date.

    Note: the normal April 15 due date is a Saturday, and the following Monday is a federal holiday in the District of Columbia, so for almost all individuals their 2016 Form 1040 returns aren’t due until the next business day, which is Tuesday, April 18.

    April 18 – Household Employer Return Due

    If you paid cash wages of $2,000 or more in 2016 to a household employee, you must file Schedule H. If you are required to file a federal income tax return (Form 1040), file Schedule H with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2015 or 2016 to household employees. Also, report any income tax that was withheld for your household employees. For more information, please call this office.

    April 18 – Estimated Tax Payment Due (Individuals)

    It’s time to make your first quarter estimated tax installment payment for the 2017 tax year. Our tax system is a “pay-as-you-go” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. These include:

    • Payroll withholding for employees;
    • Pension withholding for retirees; and
    • Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.

    When a taxpayer fails to prepay a safe harbor (minimum) amount, they can be subject to the underpayment penalty. This penalty is equal to the federal short-term rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis.

    Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (the “de minimis amount”), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors:

    • The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty.
    • The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for taxpayers whose AGI exceeds $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%.

    Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. Since 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception.

    However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. Since you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty.

    This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, when a taxpayer retires, etc. Timely payment of each required estimated tax installment is also a requirement to meet the safe harbor exception to the penalty. If you have questions regarding your safe harbor estimates, please call this office as soon as possible.

    CAUTION: Some state de minimis amounts and safe harbor estimate rules are different than those for the Federal estimates. Please call this office for particular state safe harbor rules.

    April 18 – Last Day to Make Contributions

    Last day to make contributions to Traditional and Roth IRAs for tax year 2016.

     

     

     

     

     

     

     

     

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  • Tax Filing Deadline Is Around the Corner

    29 March 2017
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    REMINDER: April 18, 2017 is the due date to file your return(s), pay any taxes owed, or file for a six-month extension. It is important to know that with this extension you will end up paying the tax you estimate to be due.

    In addition, this deadline also applies to the following:

    • Tax year 2016 balance-due payments – Taxpayers that are filing extensions are cautioned that the filing extension is an extension to file, NOT an extension to pay a balance due.  Late payment penalties and interest will be assessed on any balance due, even for returns on extension.  Taxpayers anticipating a balance due will need to estimate this amount and include their payment with the extension request.
    • Tax year 2016 contributions to a Roth or traditional IRA – April 18 is the last day contributions for 2016 can be made to either a Roth or traditional IRA, even if an extension is filed.
    • Individual estimated tax payments for the first quarter of 2017 – Taxpayers, especially those who have filed for an extension to file their 2016 return, are cautioned that the first installment of the 2017 estimated taxes are due on April 18.  If you are on extension and anticipate a refund, all or a portion of the refund can be allocated to this quarter’s payment on the final return when it is filed at a later date. If the refund won’t be enough to fully cover the April 18 installment, you may need to make a payment with the April 18 voucher. Please call this office for any questions.
    • Individual refund claims for tax year 2013 – The regular three-year statute of limitations expires on April 18 for the 2013 tax return.  Thus, no refund will be granted for a 2013 original or amended return that is filed after April 18. Caution: The statute does not apply to balances due for unfiled 2013 returns.

    If Dagley  & Co. is holding up the completion of your returns because of missing information, please forward that information as quickly as possible in order to meet the April 18 deadline.  Keep in mind that the last week of tax season is very hectic, and your returns may not be completed if you wait until the last minute.  If it is apparent that the information will not be available in time for the April 18 deadline, then let the office know right away so that an extension request, and 2017 estimated tax vouchers if needed, may be prepared.

    If your returns have not yet been completed, please call Dagley & Co. right away so that we can schedule an appointment and/or file an extension if necessary.

     

     

     

     

     

     

     

     

     

     

     

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  • March 2017 Business Due Dates

    27 February 2017
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    At Dagley & Co., we’ve compiled a list of due dates for your business. Contact us at (202) 417-6640 with any questions.

    March 15 –  Partnerships

    File a 2016-calendar year return (Form 1065). Provide each partner with a copy of Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., or a substitute Schedule K-1. If you want an automatic 6-month extension of time to file the return and provide Schedules K-1 or substitute Schedules K-1 to the partners, file Form 7004. Then, file Form 1065 and provide the K-1s to the partners by September 15.

    March 15 –  S-Corporation Election

    File Form 2553, Election by a Small Business Corporation, to choose to be treated as an S corporation beginning with calendar year 2017. If Form 2553 is filed late, S treatment will begin with calendar year 2018.

    March 15 –  Electing Large Partnerships

    File a 2016-calendar year return (Form 1065-B) and provide each partner with a copy of Schedule K-1 (Form 1065-B), Partner’s Share of Income (Loss) From an Electing Large Partnership, or a substitute Schedule K-1. This due date applies for K-1s even if the partnership requests an extension of time to file the Form 1065-B by filing Form 7004.

    March 15 – Social Security, Medicare and Withheld Income Tax

    If the monthly deposit rule applies, deposit the tax for payments in February.

    March 15 – Non-Payroll Withholding

    If the monthly deposit rule applies, deposit the tax for payments in February.
    March 31 – Electronic Filing of Forms 1098, 1099 and W-2G

    If you file Forms 1098, 1099 (other than 1099-MISC with an amount in box 7), or W-2G electronically with the IRS, this is the final due date. This due date applies only if you file electronically (not paper forms). Otherwise, January 31 or February 28 was the due date, depending on the form filed. The due date for giving the recipient these forms was January 31.

    March 31 – Large Food and Beverage Establishment Employers 

    If you file Forms 8027 for 2016 electronically with the IRS, this is the final due date. This due date applies only if you file electronically. Otherwise, February 28 is the due date.
     

     

     

     

     

     

     

     

     

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