Not All CPAs Do Taxes
This might come as a complete shock to many new business owners but not all CPAs do tax work. Someone can pass the CPA exam and acquire the necessary work experience to be licensed by doing consulting or auditing. Some CPAs have never filed a single tax return. Enrolled Agents on the other hand are accountants who just do tax work and are licensed by the IRS to represent clients on all issues. Therefore, if you hire a tax professional be sure that the person is either an Enrolled Agent or CPA who does taxes. The IRS has a Tax Pro Directory that allows you to search a tax professional’s credentials by zip code.
Filing Late Doesn’t Always Result in a Penalty
There are two common penalties that can be assessed to late taxpayers. The first is the failure to file which happens if you submit your return after the deadline. If your tax return is more than 60 days late the minimum penalty is $435 or 100% of the tax due (whichever is less).
The other penalty is the failure to pay. You get hit with this penalty if you pay after the due date. However, if you don’t owe any tax then you won’t have to worry about either penalty.
You should note that refunds have to be claimed within 3 years of the return’s original due date.
A Large Refund is a Bad Thing
Since we’re on the topic of refunds a big misconception is that a big refund is a good thing. If you receive a large refund it just means that the government had your money all year interest-free! The money could have been invested. It can also be used to pay down debt or to help with cash flow, which can be a big concern for new business owners.
Flip the switch! If you can minimize your withholding or estimated payments you can make taxes work for you. Just be sure to have the money available to make the payment when the tax due date rolls around.
The Tax Code Does not Benefit Employees
This has been case for debate and protest for as long as government has been in existence. If you are a regular W-2 employee the tax breaks available don’t benefit you as much. Sure you can take the standard deduction or credit for your children. You might even be able to contribute a little bit to your 401(k). These are great but the major tax savings and exotic money-saving strategies are mostly available if you’re a real estate investor or self-employed. There is a saying amongst tax professionals that if you’re paying too much in taxes you don’t have enough real estate!
You Really Can File For Free
Free! Free! Free! You can file for free. That’s what you hear but when you go to the website you either can’t find the right page or end up having to pay to file your return.
The IRS Free File is a tool on the IRS website with links to providers that will allow you to file online. Some of them differ based on income but if you make $72,000 or less you’ll be able to file. One word of caution, some of the providers will allow you to file the federal for free but charge you for the state return. Others let you file both the federal and state for free.
There’s also Volunteer Income Tax Assistance (VITA) who are preparers who volunteer to help people file. Their service is free and they will help you file both federal and state returns.
Taxes don’t have to be confusing. Hopefully these tax tips will help individuals and new business owners make wiser decisions come tax time.