What it is:            Any return that is filed past the due date (without an extension) is subject to a 5% penalty for any portion of a month that the return is late.  This penalty is capped at 25% of the unpaid balance.  This penalty is the most costly of the deadline related penalties and it is the most avoidable.

Extension:  A timely filed extension grants the taxpayer an additional 6 months to file.  However, this does not extend the payment due date.  If a return is filed past the extended due date of October 15^th the penalties are computed on the balance owed without regard to the extension. This means the penalty calculation would begin April 15^th.

How to avoid:    In order to avoid this late filing penalty, a taxpayer must file a return or extension by April 15^th. If a taxpayer owes tax and is unable to pay, it is still far better to file and pay late than not file on time. In this case, the taxpayer would still incur late payment penalties but would avoid the costly late filing penalty.

In a nutshell, all individual taxpayers with a filing requirement should file either a return or extension by April 15^th. Once a return is extended, make sure the return is filed prior to the extended due date.

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April 15^th signifies more than the deadline to file individual tax returns for 2012.  It also closes the door on collecting refunds for the 2009 tax year.  The IRS has estimated that taxpayers still have $917 million  in refunds outstanding from 2009. Click here for the IRS article.  Additionally, taxpayers who need to amend 2009 returns that would result in a refund must amend by April 15th (October 15^th if an extension was filed) in order to receive the refund  back from the IRS.

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For those who file Form 8863 Education Credits, the IRS will begin accepting these returns in mid-February. However, several other forms will not be accepted until late February or early March due to extensive programming changes.

The key forms that require more extensive programming changes include the following (available late February or early March):
Form 5695 (Residential Energy Credits)

Form 4562 (Depreciation and Amortization)

Form 3800 (General Business Credit)

In addition to the above, there are more than 20 other forms delayed. However, those forms are far less common then those mentioned above.  For a complete list of delayed forms is available on the IRS website.

Even if you are required to file one of the delayed forms in order to complete your income tax return, do not delay having your return prepared.  Your tax professional can prepare your return and let you know the results now and then file when the forms become available.  Not only will you avoid a late tax season rush, you will be able to plan for your tax payment or refund accordingly.

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The individual income tax rate does not jump to 39.6% until married filers reach over $450,000 of taxable income for 2013. Beware – due to phase outs of itemized deductions and personal exemptions, many filers may pay more than 35% (which is the top rate in 2012).

Married filers with over $300,000 ($250,000 for singles) of adjusted gross income will see their itemized deductions reduced by 3% of the excess of adjusted gross income over $300,000 ($250,000 for singles). Deductions such as mortgage interest, charitable contributions, and property taxes will be subject to the phase out.  Medical expenses, investment interest and casualty losses are exempt.

Notice that the phase-out of itemized deductions is not based on taxable income, but rather AGI.  As a result, filers with a large amount of itemized deductions could be subjected to the phase out even if they are in the 28% bracket.

Personal exemptions will be reduced by 2% for each $2,500 of AGI over $300,000 for couples.  A family of four with AGI of $350,000 would lose 40% of their personal exemptions.

Good tax planning is essential with tax law changes such as these that many filers are not aware of.

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The Internal Revenue Service has announced that for 2013 a simplified method for claiming the home office deduction will be available. The IRS’ goal is to reduce the paperwork and time involved for CPAs, tax preparers, and tax filers alike.

Currently, a tax filer who desires to claim a home office deduction must fill out the 43-line Form 8829.  This form factors in expenses such as depreciation, carryovers, and allocation of other home related expenses involved for their home office deduction.  The new form, which is not yet released, will be significantly simpler.

This new option for taking a home office deduction will still follow the IRS home office rules http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction but will offer an easier way to track and report the deductions.

The new simplified option allows the tax payer to deduct $5 a square foot for a home office up to a maximum of 300 square feet. This will provide a maximum deduction of $1,500 using the simplified form.  The form 8829 will still be available for taxpayers who have deductions in excess of the cap.

Unfortunately this new form and procedure for the home office deduction will not be available for the current tax season (tax year 2012) and as mentioned previously the IRS restrictions and definitions for a home office deduction still apply.

More tax preparation information on this new option can be located at http://www.irs.gov/pub/irs-drop/rp-13-13.pdf.

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IRA and Roth IRA contribution limits increased by $500 dollars to a total of $5,500 ($6,500 for taxpayers over the age of 50).

Contributions phase out for Roth IRAs at AGIs of $178,000 to $188,000 for couples and $112,000 to $127,000 for singles.  The deduction phases out for regular IRAs from $95,000 to $115,000 for couples and $59,000 to $69,000 for singles.    More information on the IRA contribution limits can be found on the IRS website here – http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits

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Although most Americans will not see an increase in their 2013 income taxes they still will see a decrease in their paychecks.  This is due to the two percentage point cut in the employee’s share of the Social Security tax.  For tax years 2010 & 2011 the Social Security rate for employees had been reduced from 6.2% to 4.2%. This tax break was not renewed with the American Taxpayer Relief Act. Therefore employees will see a reduction in their actual take home pay up to the social security wage base of $113,700.  Those who are self-employed and make quarterly estimated tax payments should contact their accountants to ensure that their withholding or federal estimated tax payments are calculated accurately.

For more details on social security rates visit the Social Security Administration page.

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This business worked events primarily in Arizona.  The company hired contractors in Arizona to handle operations at the events and would continually use the same group of individuals.  Once a year this company would hold an event outside of the state, and often would bring the group of contractors from Arizona to the other state to help support the operation.  3 years in a row the company would barely break even on their out of state events and couldn’t understand what was happening.  We stepped in and helped put together their books and their financial reports for them.  We were then able to generate statements showing where the funds were going.  We quickly were able to identify that the amount of extra money they were spending on bringing contractors from Arizona to other states was nearly 3 times the amount that they would spend if they found contractors in the state of the event.  This fairly simple discovery allowed the organization to realize that they needed to make contact with organizations in other states and hire local labor.  The next year the company saw record profits at their out of state event, simply because of the small discovery on their financial statement.

When running a business financial statements tell the story of how well you are doing.  If you don’t have adequate financial statements you may be running your business blind.  It may be time to consider hiring someone to help you get the statements cleaned up and professionally prepared.

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One of the keys to operating a successful small business is understanding what your strengths are and identifying what weaknesses you have that can be outsourced to an expert.  Most of the time individuals running a business realize that they are not prepared to write a lengthy legal document so they outsource that to an attorney.  However due to the introduction of software like QuickBooks small business owners are finding themselves more apt to attempt to maintain their accounting on their own.

The reason businesses big or small need books for their operations is so that they can generate meaningful financial statements.  A profit and loss statement and balance sheet can help a savvy business owner identify potential opportunities and areas for concern.

Excellent financial statements can only be generated if the books are adequately prepared.  This is where a bookkeeper comes in.  A bookkeeper will help reconcile accounts, allocate funds to the proper categories, and ensure that the balance sheet makes sense.  All of these tasks can be accomplished by an individual well versed in accounting, however often times it doesn’t make sense for a business owner to become an accounting expert.  Why?  The reason is simply time.  Most business owners are achieving the maximum return on their time when they are actually applying themselves to their trade.  For example a landscaper may be able to bill out 80 dollars for an hour of landscape work.  That being said every hour spent handling administrative function is theoretically an hour that is lost from the profit side of the business.

This is where a bookkeeper comes in.  A bookkeeper typically will bill out 40-70 dollars an hour and will have a minimum monthly charge.  Using this as an example lets say the bookkeeper bills 200 dollars a month to reconcile and enter the data for the landscaper.  This work took the bookkeeper 4 hours to accomplish at 50 an hour.  This means that the landscaper could have worked during the same 4 hours and earned 320 dollars.  This of course means that the landscaper was better off actually running his or her business as opposed to handling the books.  Not to mention the fact that the bookkeeper is likely more efficient at the books because that is what he or she does for a living.

Keeping good books is essential for running a business, and often times it makes a lot of sense to find a bookkeeper that can help take the burden off your shoulders.

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