By: Jeffrey Lee Drimer, Esq.
We are getting ready for the holidays. Gift wrapping, party planning is our focus but on the horizon is our responsibility to file our tax returns on time and pay our Federal and State obligations. My advice, avoid the stress, and start preparing as early as possible.
You can begin by checking the IRS interactive website “Tax Assistant” to determine if you have to file. Begin the process with your Social Security Number, as well as your spouse’s and dependants’ numbers, if applicable. Remember, your filing status will be determined by your marital status as of December 31, 2017. The possibilities are single, married filing jointly, married filing separately, head of household, and qualifying widow or widower with a dependent child.
Get a hold of last year’s Federal and State tax returns. A lot of the information on this year’s return will be the same so it is a good reference guide. What significant life changes occurred in this calendar year? Did you get married or divorced this year? Did you have a child? Are you going to school or did you change jobs? This information may cause this year’s return to be changed or amended from last year.
Among the documents you will need to complete your returns are your W-2s, 1099s and your brokerage statements if you have investments. You have to report earnings from royalties, work as an independent contractor, social security, unemployment, partnerships, and S-Corp income. You should also be aware of any forgiven debt which is also a taxable event. Gambling wins and losses, lottery and contest winnings could be taxable events that you should be prepared to report. You must report all your income, even if you didn’t get a reporting statement.
Should you itemize? The rule is itemize if your itemized deductions exceed your standard deductions. If you itemize, you should know your 1) charitable deductions; 2) mortgage interest; 3) unreimbursed business expenses; 4) medical expenses; 5) Real Property taxes; and 6) moving expenses to name just a few of your allowable deductions. There are circumstances under which you may have a medical deduction so if you had a significant year of medical expenses you should look at this deduction (Don’t forget travel for medical treatment as part of this calculation). Political contributions are not deductible.
If you think you are entitled to an Earned Income Tax Credit because of your moderate income, you can check with the IRS on-line for assistance. If you adopted a child this year, you might be eligible for an adoption credit. This is by no means a complete list of income documents and deductions; but you get the idea. Get everything together in a neat and orderly manner. It will take the pressure off in getting ready to meet with your tax preparer or trying to do your tax returns yourself. There are many CPAs in Central New York, and you should not hesitate to call one. Many people are also pleased with commercial Tax Services while others are content to do it themselves. When you or your tax preparer is done with your return, it can be filed electronically or by mail. So know your filing deadline.
The IRS has several options for payment of your taxes. You can pay by check, money order, or you can pay direct on the IRS website. If you don’t have the money you owe on hand, you can set up an installment plan. If you don’t have the money to pay at all, you can try to settle with the IRS in what is known as an “Offer in Compromise” (Hard to do and complicated paperwork, and It may be worth the effort in an emergency, and if you qualify).
If you don’t file your return on time or pay any taxes due, there can be serious consequences (potentially asset seizure and even incarceration). The penalties and fees that apply to past-due taxes are interest compounded daily and accumulated on the owed amount, a late payment of .05% of the amount owed, and an increase each month on the amount unpaid. The combined penalty for both filing and paying later is approximately 5% of the tax owed (Sometimes the penalties can be avoided for reasonable cause).
So be prepared, be accurate, be timely, and you can make this process simpler and easier than it has ever been. Enjoy the Holidays and on January 2, 2018 start getting organized to file your 2018 tax return.