Unofficial Tax Guide

With such little time before the deadline, people are trying to figure out what they can still do, what resources are available, and how to go about the process of filing for an extension. Hopefully, the following will be able to help you out.

How do I know if I should I file for an extension?

What an extension does is provide adequate time to file a return. Extensions do not allow for an extension for payment on taxes due. Typically with an extension, you are required to pay tax estimation in advance.

How do I get an extension to file my tax return?

You should file a Form 4868, and this will give you an extension. The extension is good for 6 months. Keep in mind that this is only an extension for time. It’s not going to eliminate any late-filing fines and any taxes you’re indebted will still need to be included.

What if there was something wrong on a W-2 and you are still awaiting a correct one?

There are a couple of choices for you. You can pay the amount that is due and send an amended return, or file for an extension, and explain that the extension was due to the incorrect W-2 form you had received.

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The 401 (k) is a retirement plan implemented and provided to employees by their employer as a means to save for their retirement.  Not only do many employers contribute to the employees 401 (k) along with employee contributions (this is known as matching), but the contributions are pre-tax contributions; in other words the deduction is taken prior to calculating the state and federal taxes due on the wages.  This helps not only the employee, but also the employer.

There are many variations of the 401 (k) and depending upon your employer’s status as a small business, and their ability to fund a 401 (k), you may operate under a Simple 401 (k), a traditional 401 (k), or The Safe Harbor 401 (k).  All the plans vary as to their contribution limits, the employers required matching contributions, and the level of administration and IRS reporting that must be factored into the plan upkeep.  Let’s take a look at each of the plans, and discuss some of the advantages and disadvantages of each.

The Simple 401 (k) is best suited for small businesses that have a reliable earnings stream.  In other words, their cash flow and earnings level are fairly steady and reliable, and they want to establish an easily controlled method for providing for retirement funding.  Quite often, many of the family members will participate in the 401 (k) as a way to fund their own retirement, and offset some of the taxable income from the family business.  The disadvantage in operating this type of retirement account lies in the fact that contributions made on behalf of the employee by the employer are not optional, and some form of contribution must be made each year.

The traditional 401 (k) is the most often avoided plan by small to medium sized businesses, simply because of the massive reporting requirements, and the compliance testing that must be done each year.  It can be costly for the traditional 401 (k) for a company of about 10 employees. Costs can be around $2000 per year to administer. That doesn’t include the setup costs or the costs of loan features.  In addition to the optional features costs, there is the cost of offering many investment choices.  Most of the 401 (k) plans for small businesses that were surveyed had a much better rate of participation as well as lowered plan costs when only a few options were offered, instead of 10 or more.

The compliance testing that must be done with the traditional 401 (k) are quite complex, and require much involvement by the accounting or payroll department of the business.  Today, many small businesses outsource their payroll function, and include the 401 (k) plan administration as one of the outsourced functions also.   The greatest advantage to the small business is that the business is not required to contribute to the plan, unless there is a significant imbalance in the contributions of the highly compensated employees versus the lesser paid employees.

The Safe Harbor 401 (k) is a spin-off of the traditional plan, except for the fact that there aren’t all the compliance requirements and testing that must be completed each year.  The Safe Harbor plan is best suited for the small business that has a steady revenue stream, and that is able to make a required contribution each year to the employee fund.  The employer must make a 3% contribution to all employees who qualify for retirement funding, regardless of whether the employee makes a contribution; also, the employer contribution level for non-highly compensated employees must not differ more than 2% from the highly compensated employee contribution rate.  In this manner, the employer is required to provide the same benefits for all employees, without all the compliance testing of the traditional plan.   The Safe Harbor 401 (k) is simple to set up, and can be accomplished within 30 days of the New Year, and is quite easy to administer.  The disadvantage to this plan is the required contribution rates, and if the business does not have a steady cash or revenue flow, it is not a recommended plan.

After examining the different plan options available for small to medium companies, there should be at least one that fits within any small businesses scope of operations.  Providing retirement funding for small business family members, as well as all other employees is one of the greatest benefits a company can offer current and prospective employees.

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Individual Retirement Arrangement (IRA) is a savings plan that lets you save for retirement and gives your savings tax benefits in the form of tax deductions. Every contribution made to this plan is entitled to the IRA tax deduction. This does include earnings from these IRA contributions. That is unless they are distributed to you.

There are two types of IRA and therefore two set of rules where deductions are concerned.

First there is simple IRA. Traditional IRAs are a personal savings plan that encourages a person to save for retirement and gives this person tax advantages for doing so. All contributions that are made to a normal IRA may be a deduction in part or whole. Earnings from IRAs are also exempt from taxes, unless they are distributed to you.

When setting up an IRA the person must be younger than seventy and a half years at the end of the tax year in which you have applied. Also, the person must have a taxable compensation when they set up this plan. Taxable compensation includes: salaries, commissions, alimony, maintenance or any other means of income generated by self. Rental or any other income from property, annuity or deferred compensation does not qualify as taxable compensation.

Maximum dollar amounts contributable to the IRA are either $ 3,000 or the taxable compensation for the year, whichever is less. Contribution limits are $ 3,500 if you are 50 years or older. If you are not covered by any other retirement plan at the time of contribution then the whole amount that you contribute is deductible. If currently the person is covered by a valid retirement plan, the IRA deduction can either be reduced or eliminated, depending on the amount of the Modified Adjusted Gross Income and the filing status.

In the case of withdrawals, anything that you withdraw from IRA is up for taxation, either wholly or in part. If full deduction for contribution made is being claimed, the taxation on the amount withdrawn will be cent for cent.

Traditional IRAs can be established at many financial institutions, including credit unions, banks, insurance companies and brokerage firms.

Roth IRAs are the other type of IRA. The Roth IRA is the reverse of the traditional IRA. All contributions that are made to Roth IRAs will get no tax deductions. However, there are no taxes on the withdrawals or earnings either. Everything else about Roth IRA is like the simple IRA. Just like a simple IRA it can be either an annuity or an account. Roth IRAs must be designated as a Roth IRA when it is set up.

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What is a 1099 and who gets one? We hear this term used more and more frequently as many employers are opting to use contract labor versus hiring employees, who can turn out to be quite expensive when you factor in the insurance, payroll taxes, and other possible liability. Hopefully this will be able to explain, who can receive one, its purpose, and why.

The 1099 forms, if you are the recipient, should be furnished to you on an annual basis, by a set deadline (January, 31^st), and must be furnished and filed by the company no later than February 28, 2006.

If you are an independent contractor, or you receive income that is classified as non-employee income, or miscellaneous income you will receive what is known as a 1099-Misc. These are the information returns most often received for contract for-hire work, leased workers, or general contractor payments which are not direct sales as a merchant to a consumer.

The other most often used 1099 form would come as a 1099-Int; this is a 1099 received for interest income purposes; whether the income be from a lending institution, or from the sale of a seller financed mortgage, the recipient of any income from interest will receive a 1099-Int. A close relative of the 1009-Int is the 1099 OID. This is an information return provided when you receive an original issue discount, usually from transactions related to mortgages served by the Federal Housing Authority.

Another 1099 can come as a 1099 B for barter exchange transactions. What does this mean? It means that instead of monetary payment, you received a bartered form of payment, an exchange of something other than money, with value attached in order to pay for a service.

1099 C is received if there is a cancellation of debt, as from a bankruptcy proceeding, credit card default, or other failure of a maker to make good on a debt that the lender or seller can use as a tax deduction. The 1099 CAP is a 1099 used to report significant changes in corporate control and capital structure. What does this mean in laymen’s terms? If you and several other individuals are in business together, as an incorporated entity, and 3 of you buyout another individual, you will be required to furnish that individual with a 1099 CAP so that the individual reports any income or gain from the capital sale of stock.

A 1099 that we’ve not seen very much until recently, but one that I’m sure we’ll see much more of in the not too distant future is the 1099 LTC. Long-term care and accelerated death benefits are filed on this 1099; with a larger segment of our population aging, this will make more use of long-term care insurance and payouts, and many of them will receive types of 1099s.

Although these are most often forms of taxable income to the recipient, this is not always a steadfast rule. For many older citizens, and for individuals receiving the returns as part of a discounted program through the government, and for certain other situations, these are only information returns that do not result in added tax liability. For the rest of us a 1099 usually means we have increased tax liability.

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Due to hectic schedules many individuals rely on the internet to file their taxes. Since the e-filing program was first developed, millions of Americans have changed the way that they file their tax returns. At one time the majority of Americans relied on paper tax forms or the IRS’s telephone filing system. Now the popularity has shifted to online tax filing; however, the majority of Americans still do not file their own taxes online. Although filing taxes via the internet is easy and convenient many individuals are concerned about the safety and security of their personal information.

Filing taxes online is not only convenient, easy, and doable by just about any individual it is also extremely secure and safe. Although the process is safe and secure there are a number of precautions that every online tax filer should take just to insure the safety of their personal information and documents.

The majority of individuals who plan to file their taxes online will use the e-file program that is offered by TaxEngine.com. The e-file program and information pertaining to it can be found by visiting www.taxengine.com. TaxEngine’s website is most likely one of the most secure websites around. Due to their possession of many important documents their computer systems are often equipped with extra protection that is used to safeguard their valuable information.

It is possible for an individual interested in using the internet to file their taxes to use a tax software program. Some of the tax software programs have an option to submit tax forms either directly to the IRS or some claim that they will handle the return themselves. It is possible to find a legitimate company who will offer this service; however, it is not always guaranteed that their company website is safe and secure. When working with an unfamiliar company or website there are ways to verify that the company website is secure.

Each and every website that obtains personal information should have a privacy policy displayed somewhere on the website. This privacy policy will familiarize users with what is done with personal information, how it is handled, who may see it, and if the information will ever be sold for commercial use. When submitting important personal information it is important to examine the website. Towards the lower bottom right hand corner of the web page should be a small lock icon. That lock icon is used to symbolize privacy. If a website has that symbol when you are entering in personal information that means that the website is secure.

The majority of websites that request personal tax information are secure; however, it is a still a good idea to make sure that the computer being used is also secure. Hijacking of computers, worms, and virus are now all too common; therefore, it is important to make sure that a computer being used to submit an online tax filing is free of them. Thanks to libraries and internet cafes it is possible for an individual without internet access inside their own home to file their taxes online. When using a public computer it is important that each program has been fully shut down and logged off. Be sure none of your personal account information is stored in the cache or memory of the computer after you log off.

Filing a tax return online is an easy and convenient way to file your taxes. Although this process is extremely safe and secure, is it still important to take precautions to safeguard your personal identity and tax-related information.

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With the popularity of online tax filing on the rise a large number of individuals or families are starting to prepare and file their own taxes over the internet. Unfortunately many individuals make a number of mistakes when they are inexperienced in tax preparation and try to file their taxes online. One of the most common mistakes that an individual makes happens because the person does not fully understand the process of preparing his or her tax return and then filing it online because in reality, they are two different things.

The development of tax software is what has made the online filing of taxes easier to use. Tax software programs are developed to help guide an individual through a particular tax form. The tax software will offer instructions like a traditional tax form and may even have a customer service department that can be contacted by phone or over the internet. Undoubtedly, you will find the best customer service at TaxEngine.com. A tax software program can often be purchased and download from the internet or a number of retail stores. Since each year there are tax laws that have been updated or changed it is important to make sure that the latest software version is being purchased.

When purchasing a tax software program it is important to determine if the software will allow the completed tax forms to be filed electronically. The majority of tax software programs will offer a choice between paper print-outs or electronic filing. It is possible for just about any software program to have tax forms uploaded to the e-file program. It may be a good idea to purchase a software program from an authorized provider. On the website of the company or the box of the software program there should be a logo or a label that marks the product as being an authorized IRS e-file provider.

A tax software program will help to prepare the files and then submit them via the e-file program which can be found by visiting www.irs.gov. There are other ways to obtain free online tax forms that can be used to file taxes online; however, many individuals feel that a tax software program is a great investment. As previously mentioned there are many helpful tips and resources that are provided with a software program. The majority of the tax software programs on the market will check and make sure that the forms are filled out correctly and that all mathematical equations equal out. Making sure that all of the information is correct will help a return be processed quicker.

There is a difference between tax software and online filing; however, many tax software programs will file the taxes online. Quality tax software programs can be obtained by downloading them from a reputable tax software company or by purchasing them from a book, media, or department store.

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April 15th is the final deadline for filing taxes; however, many Americans are unable to have their taxes filed by the deadline. Whether the reason is procrastination, hectic schedules, or lost documents there are some taxpayers who simply cannot meet the ever-so-important tax deadline. For these individuals there is a way to receive at least a four month extension by requesting one from the IRS.

It is important to remember that filing an extension does not give a tax payer additional time to pay their taxes. This is a common mistake that many individuals make. Many still think that they can request an extension from the IRS to hold off on making their payment until they have the money. The truth of the matter is that a taxpayer who owes money to the IRS is still required to make an on-time payment, with or without an extension.

Individuals who request a tax deadline extension and owe money to the IRS are required to pay interest on the amount owed if it is not received by April 15th. According to the website of the IRS an additional late fee can be charged if ninety percent of the amount due is not paid by the deadline. Individuals who request an extension, but do not owe money will not be charged a penalty for filing their taxes past the April 15th deadline.

There are a number of ways for a taxpayer to receive an extension on their taxes. For individuals who are filing their own taxes on paper they are required to fill out an Application for Extension which is listed by the IRS as being form number 4868. This extension form must be received by the traditional tax deadline of April 15th to completely be processed.

With the availability of professional tax software programs for home use it is now possible for individuals to file a tax extension with the forms provided with their most recent tax software program. Many of these programs are linked with the IRS’s e-file program; therefore, the extension forms can be submitted electronically. Tax extensions that are filed electronically will be provided with a receipt. This receipt is used to acknowledge that the appropriate tax extension forms were received and processed by the April 15th deadline. All confirmation numbers or receipts should be kept incase they are needed later on for verification purposes.

Individuals who are unfamiliar with filing their own tax forms or do not have access to tax software or a computer may wish to have a tax professional prepare and submit an extension form for them. Depending on the tax professional, a small fee may be charged for having this service completed.

Taxpayers who cannot pay their balance due by the tax deadline do not need to request an extension. The same interest rates and penalties will apply with the balance due if is not paid to the IRS on time, regardless of whether a tax extension was filed.

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A large number of taxpayers file their own tax returns or have a tax professional prepare them. Whether tax returns are prepared using a tax software program or a paper form there is still some chance that a mistake can be made. Once a tax return is prepared many taxpayers are unaware that an error has occurred; however, others may notice it. If it is known that an error was recorded on a federal tax return there is a way to amend it.

The most common mistakes that many taxpayers make when preparing their own paper taxes involve math. A professional tax software program does not guarantee that mathematical mistakes will be caught; however, the majority of programs do check and verify accuracy. If the only mistake made on a federal or state tax return is a simple mathematical equation chances are the mistake will be caught and altered by the IRS.

Another common error that many taxpayers make when filing their tax returns includes providing the incorrect social security number or other important personal information. In this case it may be impossible for a tax return to be processed. If this problem arises and it goes unnoticed by the taxpayer it is likely that the IRS will send the tax payer a notice requiring that the correct information be obtained.

Individuals who receive a notice that they forgot to report a portion of their income or may have forgotten to declare a tax deduction can amend their tax return. An Amended Individual Income Tax Return form can be acquired from a number of locations. This form can generally be obtained wherever traditional tax forms are available, which many include financial institutions, a library, or the post office. The form can also be accessed through TaxEngine.com or by visiting www.irs.gov. The Amended U.S. Individual Income Tax Return is listed as Form 1040X. If any additional paperwork, such as an additional W-2, is required it will be listed in the instructions for the 1040X form.

An amended return will be processed once the IRS receives the paperwork; however, it is important to remember that this is likely to cause a delay in a taxpayer receiving a refund. If a payment is due to the IRS after a tax return was amended, the amount due is still required to be paid in full by the traditional April 15th tax deadline. Purposely causing an error in a tax return to cause a delay in having to make a payment to the IRS is illegal. Late fees and penalties may apply if a payment is not processed on time.

Almost all tax return mistakes or errors can be prevented. Carefully taking the time to prepare and review a completed tax form is the best way to catch a mistake before the form is processed and sent out to the IRS. It is likely that if a mistake was made on a federal tax return that a similar mistake may have been made on state tax forms. Examining tax returns will not only prevent any late fees or penalties, but it will also allow a taxpayer to receive their refund faster.

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