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Know Your Business Tax Filing Deadline

What’s your Company’s Business Tax Filing Deadline?

When it comes to tax planning, it’s never too early to start, or too late to plan. January is almost over, so it might make more sense to look back so you can learn from what happened last tax season, and make better plans for the current year. On the other hand, there’s no harm in trying to come up with some last-minute maneuvers (just legal ones) that can help reduce the sting of taxes. But it all has to be done before your business tax filing deadline.

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File on Time

If you have been in business for a while, you might be used to following tax filing deadlines that have been in effect for some time for businesses following a calendar year; that’s March 15 for S Corporations and C Corporations, and April 15 for Partnerships. Due to a recent bill passed by Congress and signed into law by President Barack Obama, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, some tax filing due dates have been adjusted, particularly for those in business.

Starting this year, the business tax filing deadline for Partnerships (Form 1065) has been moved one month early, from April 15 to March 15. The filing deadline for C Corporations (Form 1120), on the other hand, has been moved one month later, from March 15 to April 15. The filing deadline for S Corporations (Form 1120S) remains unchanged at March 15.

To avoid being slapped with unnecessary fines and penalties, make sure you adhere to the new business tax filing deadline.

Apply for an Extension if Needed

While some tax filing due dates have changed, the prerogative to ask for an extension hasn’t. So if you are not yet fully prepared to file on your original due date, take advantage of the special consideration being given by the IRS and apply for a 6-month extension (Form 7004) not later than your original due date. For example, a request for extension should be filed by a C Corporation on or before April 15.

Based on the revised due dates, extension deadlines are as follows: September 15 for Partnerships and S Corporations; October 15 for C Corporations.

Don’t worry, Practical Taxes can help you submit the tax filing extension if you need more time.

Review your Deductions

Based on Section 179 of the Internal Revenue Code, you can opt to recover the entire cost or part of the cost of certain qualifying property by deducting it in the year you used it for your business. Starting from 2014, that’s a deduction of up to $500,000 from eligible business expenses such as office furniture and fixtures, business machinery and equipment, computers, software, and many other depreciable properties.

If your business is involved in one of the following industries: architectural and engineering services, construction, film production, or manufacturing, then it might serve you well to look into Section 199 of the IRS Code. Basically, this allows you to deduct up to 9% of your income that is directly derived from qualifying activities related to manufacturing done on U.S. soil.

If you use your home or part of it for your business, make sure you do not forget to take advantage of what is known as the home-office deduction. Based on the simplified version, you can deduct up to $5.00 per square foot (up to 300 square feet) for a maximum deduction of $1,500.00.

Practical Taxes Does Business Tax Filing

As a business owner, you have a lot on your plate. You have to worry about the ins and outs of running a business, worry about employees, worry about the bottom line, and make sure everything is going well with the business. The last thing you want to worry about is whether or not your taxes were done right.

Practical Taxes has you covered. We will prepare your taxes, make sure everything is filed, and ensure that you are getting the largest refund possible.

Give us a call at 406-894-2050 to schedule an appointment.

 

Estate Taxes vs. Inheritance Taxes

castle-780982_1920-300x225Estate taxes are often referred to as death taxes. It seems that no matter what is going on, the government wants to get a piece of the pie. So when you pass away, if you have a large enough estate, there may be taxes that are owed. On top of that, there are inheritance taxes to be worried about. So how do you know the difference, how much you will owe, and what to plan for? Keep reading as Practical Taxes, your accountant in Billings, explains the difference between estate taxes, inheritance taxes, and who needs to worry about them.

 

Federal Estate Taxes

A few years ago, understanding estate taxes was a pain. There was a set amount that would be excluded, and that number stayed the same for a decade. After 10 years it needed to be adjusted for inflation, but congress was trying to decide what to do. There was a fear that it would reset, and anyone that died during the reset period would be subject to massive taxes.

Fortunately that has been figured out, and the estate tax exclusion now adjusts annually. For tax year 2015, your assets can total $5.43 million before you owe taxes. That means if your assets total $5.45 million, you only owe federal estate taxes on $20,000. Current estate tax rates are between 35% and 45% depending on your situation.

If you are fortunate to have an estate larger than the exclusion, and thus you will have to worry about the taxes, pay attention to the name of the tax. Estate taxes are paid by the estate before money is distributed to the heirs. The government doesn’t care if those assets are tied up in real estate either. The estate will have to raise the money any way possible to pay the tax.

State Inheritance Taxes

Fortunately there are only 15 states (and D.C.) that have an inheritance tax. Montana is not one of them. But in case you have two residences, pay attention.

State inheritance tax varies by state. There are different exclusions, different tax rates, and different provisions. Since Montana isn’t included, we won’t go into any details; but we can discuss it with you if your situation calls for it.

Just as estate taxes are paid by the estate, inheritance taxes are paid by the heir.

How to Avoid Estate Taxes

There are a couple of ways to avoid estate taxes. One involves reducing the size of your estate, the other actually involves increasing the size.

Reducing the size of your estate – The only true way to completely avoid estate taxes is to have an estate smaller than the exclusion of $5.43 million. However, rapidly reducing your estate is tough since you can only give away a certain amount every year. You can give $14,000 each year to anyone and avoid gift taxes.   So if you have 10 grandkids, you can move $140,000 out to UGMA or UTMA accounts. You can move money out by donating to charity, or setting up an ILIT.

Increasing the size of your estate – Moving money into an ILIT will actually increase the size of your estate. Let’s suppose your estate is worth $6 million. You start an ILIT (the trust owns the insurance, the estate is the beneficiary) and give the trust $14,000 per year to pay the premiums. Suppose the death benefit is $4 million, your estate (at the time of your death) will be worth $10 million. The benefit here is that even though you owe taxes on the additional value; it is all paid with liquid money that comes from the life insurance.

Let Practical Taxes Help with Your Estate Planning

If you have estate planning needs, Practical Taxes can help. We can work closely with your attorney, your financial advisor, and you to draw up these plans. We will help you plan for your estate taxes, or help you avoid them if we can legally make it happen.

If you don’t have estate tax issues, we offer affordable tax preparation services in Billings. Give us a call at 406-894-2050 to learn more and to schedule your appointment.

 

Rising Interest Rates Can Affect Your Taxes

Interest-Rates-300x212A few times every year the Fed gathers together. There are rumors that run rampant throughout the finance world that they are raising interest rates this time. So far every meeting has adjourned and the decision has been to leave interest rates alone. But they can’t stay down forever.

When interest rates start to rise, they can have some drastic effects on your taxes. Just how drastic? Read on to learn more about how rising interest rates can affect you.

Interest Rates and You

Every financial transaction that you make is affected by interest rates. From the cost of goods, to how much you earn on your investments, to how much you pay when you carry a balance on your credit card. For the consumer in debt, low interest rates are good. It means you get cheaper credit. For those who have a lot of investments, a higher is better. But if interest rates rise too fast, it can have some severe problems.

Most people think of interest rates and how they affect their loans. If interest rates drop, they can refinance and get a better deal on their loans. That means if you’re stuck paying 6% interest on your mortgage, and the Fed lowers interest rates another time, then you might be able to refinance at 4%. Over the life of the loan, that extra 2% can mean many thousands of dollars.

Interest rates also affect how much you earn when you put your money into savings. If interest rates are high, then you get a better return (many accounts were yielding 5 or 6% before the recession in 2008). That meant your money would grow a lot faster.

Investments in bonds are tied very closely to interest rates. Bonds are in essence giving a loan to a company. Suppose you buy a $1,000 bond with a coupon of 5% (basically it pays 5% interest). Every year the company gives you $50, and at the end of the term (usually 10, 20 or 30 years), you get your $1,000 back. If interest rates drop, and the company can now sell bonds for 3% interest, they will cancel your bond, pay you $1,000, and then sell a new bond to someone for cheaper. The bond market is much more complex than that, but you get the idea.

Investments in the stock market are also tied to interest rates, albeit a little more indirectly. If interest rates go up, stocks that pay dividends know that their dividends are going to have to go up in order to stay competitive. This means that the value of the stock itself will drop a little bit.

Rising Interest Rates and Your Taxes

There’s a quick rundown on how rates affect your investments, savings, and loans. But how do they affect your taxes?

Let’s look at each of those components and see.

Mortgage interest is tax deductible (to a certain amount). That means if you have an adjustable rate mortgage, you are probably paying really low interest right now. If interest rates go up, you will end up paying more in interest on your loan, and you will be able to deduct more off your taxes. Likewise if you take out a new loan, a rising interest rates will mean a larger tax deduction.

Interest earned on a savings account is taxable income. Let’s suppose you are currently earning .5% on $25,000 of savings. That brings in a whopping $125 per year. In a 25% tax bracket you’re looking at roughly $25 in taxes. Rising interest rates make that go up, and if your account starts earning 3.5% interest, you are now getting $875 each year in interest. That same tax bracket means you owe $175 in taxes.

If you have a bond that is paying a lower interest rate than what the market says it should, the value of the bond is going to go down. So if you try to sell your $1,000 bond on the open market, you may only get $850 for it because people know they can get a higher interest rate by paying full price. If you paid $1,000 for a bond, and you sold it for $850, you can deduct $150 from your taxes. Likewise, if you invest in a new bond, all interest is taxable (for corporate bonds at least).

Dividends collected from stocks are taxable. The more the stock pays out the more you pay in taxes. That one is pretty simple.

Practical Taxes is your Affordable Tax Preparer in Billings

Here at Practical Taxes we want to make sure that you know about your taxes. We will prepare your tax return, but we will also give you pointers on how you can lower your tax bill next year. Tax preparation is our specialty, but get in touch with us for all your accounting and bookkeeping needs. Just call 406-894-2050.

Four Summer Tax Moves to Improve Your 2015 Taxes

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Summer is well underway, the year is half over, and you are enjoying the long days and warm weather. Tax season is months away, and you are likely not even beginning to think about your taxes yet. But now is the perfect time to reassess your tax situation in order to ensure that you will not owe exorbitant amounts to the IRS next year. Your payroll expert and Billings, Montana accountant explains 4 quick ways that you can make your taxes more favorable come next spring.

 

Summer Tax Move: Adjust Your Tax Withholdings

Your 2014 taxes turned out just fine, but perhaps next year you would like to get a refund that is slightly larger. Or maybe you ended up owing money on your 2014 taxes and you’d like to avoid that uncomfortable situation in the future. Fortunately, it’s not too late to adjust your withholdings.

If you are an employee, you likely remember filling out a W4 when you were first hired on. Did you know that you can change those forms at any point throughout the year? Simply talk with your human resources department (or your payroll services provider) and ask that your withholdings be updated. You can specify a smaller number (any number 0 or greater; the higher the number the less is withheld). If you’re already at 0, then you can specify an additional dollar amount to be withheld from each paycheck.

Many people will tell you that you should shoot to have a $0 refund, but really it is in your best interest to have a larger refund.

Summer Tax Move: Save Summer Camp Receipts

If you have a child, and you enrolled him or her in summer camp, keep those receipts! Did you know that the IRS views summer camp as a form of day care? You can deduct up to 35% of your summer camp costs claiming the Child and Dependent Care Credit.

In addition to summer camp, if you’re doing any charity work this summer, like traveling across the state to help rebuild a school, church, or other non-profit, you can deduct 14 cents for every mile you drive.

Summer Tax Move: Increase Retirement Savings

The vast majority of Americans are woefully behind on their retirement savings. They really need to ramp things up in order to meet their goals. You don’t have to be one of those that are behind on their savings.

If your company allows it, boost your savings by 2% this summer. You probably won’t even notice the change in your paycheck, but when it comes time to retire you will be far better off. Next summer, do the same thing.

For those who are maxed out at work, or can’t change contributions mid-year, start putting more into your Roth or Traditional IRA. You can put aside up to $5,500 this year. If you have maxed those out as well, then consider permanent life insurance, or a non-qualified investment plan.

Summer Tax Move: Increase Your Charitable Giving

The standard deduction for 2015 is $6,300 for a single person, $12,600 for a married couple. If you feel you will be coming close to that amount, then you should up your charitable contribution to get a bigger deduction.

You can start simple by giving $50 every two weeks to your favorite charity, and then boost those deduction amounts by doing some summer cleaning. Clear out your closets and garages; anything you haven’t used in a long time, give it away. Be sure to get receipts!

Practical Taxes Can Help

Practical Taxes is a full service accounting firm in Billings, Montana. We can help you get the most from your taxes, and make sure that you will get the maximum refund every year. But we don’t just do taxes! We can help with your bookkeeping, payroll, bank reconciliation, budgeting, and more. Give us a call at 406-894-2050 to learn more.

4 Tax and Monetary Changes in 2015 You May Have Missed

Tax code, investment laws, and savings programs change every year. If you aren’t keeping up, you may be missing out on some important changes that can have a dramatic impact on your finances. Most of us know about the big changes, like the tax implications of the Affordable Care Act. But there are a lot of smaller changes that don’t get as much press. Here are 4 of those changes that went into effect this year. Your payroll services expert in Billings, MT explains how they can make a huge difference on your finances.

 

 

Retirement Plan Limits Increase by $500

If you think that you have maxed out your 401(k) or 403(b) plan, you might want to look again. In 2014 the contribution limit was set at $17,500 with a $5,550 catch up for those who are aged 50 and above. Those limits have changed and you can now put in $18,000 and catch up an additional $6,000 if you are over 50 years old. The best part is that any money you put aside won’t be taxed until you take it out.

For those who don’t have access to a 401(k) or 403(b), but you do have a different employer sponsored plan, there is still good news. The limits on nearly all of the employer sponsored plans are increasing by $500-$1,000. The bad news: IRA’s are still at the $5,500 they were at last year.

Standard Deduction Increases by $100

When you file your taxes you get the choice of itemizing your deductions, or taking the standard deduction. Depending on your living situation, how much you give away throughout the year, and other factors, you may benefit from one or the other.

For those who don’t have a lot of deductions throughout the year, there is good news. They get an extra $100 ($200 if married) to write off. This brings the deduction up to $6,300 for a single filer, and $12,600 for a married couple.

Social Security Recipients Get a Raise

If you collect social security, you can rejoice… sort of. Your cost of living increase bumps up your benefit by 1.7%. For the average recipient that means $22 extra per month. Not a lot, but can make a big difference to those who have this as their only source of income.

Since the Social Security program is running out of money, or at least that’s what many believe, they need to bring in some extra cash. The upper limit on what is taxable for social security has also increased by 1.3% going from $117,000 to $118,500.

Obamacare Penalty Will Double

The Affordable Care Act was signed into law a few years ago now. But only last year was the penalty enforced for not having insurance. Last year it was just 1% of your income, or $95 (whichever is greater). Considering that most people make over $9,500 per year, the penalty is essentially 1% of your income.

In 2015, that penalty bumps up to 2%, or $325 (whichever is greater). Again, most people make more than $16,250, so that penalty is essentially 2% of your income.

If you make $50,000 per year, you will owe $1,000 in penalties if you don’t have insurance. It’s still cheaper than buying insurance, but why take that risk?

Practical Taxes is Up To Date on the Laws

Here at Practical Taxes we are a full services accounting firm in Billings, Montana. That means we have to stay up-to-date on these tax laws, and that means you get the benefit of our knowledge. Whether you are looking for someone to help with quarterly tax filings, yearly tax preparations, payroll services, or business consultation, we are here to help. Give us a call at 406-894-2050 to make an appointment today.

Managing Money after Marriage

Marriage-300x200Getting married is a huge step for everyone. Not only are you combining your two lives legally, which means that you are now sharing just about everything, you are also combining your financial lives. Even if you maintain separate checking accounts (some argue this is a bad idea, but it has helped save countless marriages by eliminating fights over money), your financial lives will be severely intertwined and changed forever. If you are planning to get married soon, or looking toward the future as to what marriage will bring, your accountant in Billings, Montana helps you be aware of what to expect.

 

Dual Incomes After Marriage

There is a term you may have heard. And most likely you have heard it used inappropriately. That term is dink, which stands for Dual Income No Kids. Even if you are young, fresh out of college, and not making a lot of money, two incomes is better than one. As a married couple your expenses don’t increase that much, but the money coming in doubles. Before kids enter the picture, now is the time to really get things on track financially (because after kids come then you are in a whole new financial category).

With two incomes you will want to make sure that your emergency fund is sufficient. This means having enough to cover a few months of living expenses if you were to suddenly find yourself unemployed. It also means having a bit extra so when, or if, you decide to have children you have enough to pay for their hospital bills when they’re born.

Two incomes means really plugging away at your retirement funds as well. When you are young, and time is on your side, is when you need to stuff as much money into your IRA’s as possible. A few years now are worth a whole lot more than a lot of years later.

But two incomes will also mean that you are pushed into a new tax bracket.

Married Couple Taxes

Suppose you were married on January 1st 2015; your taxes for all of 2015 would be as a married couple. If you were married on May 1st 2015; your taxes for all of 2015 would be as a married couple. If you were married on December 29th 2015; your taxes for all of 2015 would be as a married couple. You get the point, no matter when you were married, for tax purposes you were married the entire year.

For those in a lower tax bracket (that is the 10% or 15% brackets) the incomes are basically double. For instance, as a single person you are taxed 15% on earnings between $9,226 and $37,450. For a married couple filing jointly, you are taxed 15% on earnings between $18,452 and $74,900. However, once you move into the 25% bracket, that is when things start to change a little.

Add into the mix that if you have substantial deductions, but your spouse doesn’t, then it may be better to be married filing separately. If you work, but your spouse doesn’t, then there is always the head of household status. If you have a lot of deductions, then you could push yourself into a lower bracket. The bottom line is that as your income increases, your taxes become more complicated; especially with a spouse and a family. It’s a good time to hire an accountant to do your tax preparation.

Practical Taxes

We are a full service accounting firm in Billings, MT. We understand that marriage causes a lot of different financial changes, and money can end up causing a divorce. Instead of fighting over money, be prepared for what is to come, and let us handle your taxes so you can eliminate stress from your lives.

Practical Taxes can handle all of your accounting needs including tax preparation, payroll services, bookkeeping, and more. Call us today to learn how we can help you 406-894-2050.

Should You Keep Your Mortgage for Tax Purposes?

mortgage_rate-300x284If you study personal finance at all, you will find conflicting accounts of whether or not you should pay off your mortgage. Some say to get out of debt as quickly as possible, and that means pay extra on your mortgage. Others say that since you can deduct mortgage interest from your taxes that you shouldn’t pay off your mortgage as quickly as possible. But how does it actually work out? Your accountant in Billings, MT looks at the numbers and helps you decide what is in your best interest.

 

 

 

 

 

How Much Interest Your Pay

The decision to pay your mortgage off early or to keep it around for the tax deduction, all depends on how much interest you actually pay. So we will look at two scenarios in order to determine if it makes more sense to pay off your mortgage early or just let it run its course.

In our first scenario we are buying a new house. Our total mortgaged amount is $200,000 and we got a good deal at 4% interest on a 30 year fixed rate mortgage. For ease of calculations our first payment was on January 1st of the year. Over the course of 12 months we make payments totaling $11,457 of which $3,522 is principal, and $7,935 is interest (keep in mind every payment more goes toward principal and less toward interest).

If we itemize our deductions, which means we have to come up with $4,465 for a married couple (to put us over the standard deduction), then paying on this mortgage will save us $1,983 off our taxes (assuming a 25% tax rate).

In our second scenario we are an existing homeowner. We have a loan with the same terms, but there is only $100,000 left on the mortgage. Over the course of 12 months we still make payments totaling $11,457, but this time $7,572 goes to principal and $3,885 is interest.

Assuming we still itemize, and have $8,515 of other deductions, then we can save on our taxes with paying our mortgage. But now those savings are only $971.25.

Now here is the situation: in scenario #1 you spend $7,935 to save $1,983. In scenario #2 you spend $3,885 in order to save $971.25. In other words, you spend a dollar to save a quarter. Unless you need that itemization to push you up and over the standard deduction, it doesn’t make a lot of sense to keep your mortgage around for the tax deduction. You can calculate your mortgage and amortization over at Bankrate.com.

Other Factors to Consider Regarding your Mortgage

However, there are several other factors that play into the keep-it or pay-it-off decision.

First of all, can you even afford it? If you don’t have an emergency fund, and you are skimping on your retirement fund, then you are better off keeping the mortgage. Use those extra payments to boost your other accounts before trying to pay off your mortgage early.

Liquid money is always better. Having your net worth tied up in your house is almost never a good idea. If you need cash, you will have to sell the house or take out an expensive home equity loan. Unless you have other resources, you might not want so much money tied up in the house.

Finally, you could likely get a better rate by investing the money. If you have a 4% interest rate, your after-tax savings rate is 3%. Over the long term, your investments should make far more than that. Why give up an 8% return in order to get a 3% return?

There is a lot that goes into the decision to pay off your mortgage. If you are simply keeping it around for the tax benefits, then you are actually losing money (pay $1 to save $.25). But if you are keeping it around because you don’t have other resources, and you have the discipline to invest it elsewhere, then it makes a lot of sense to keep the mortgage around.

Practical Taxes is a full service accounting firm in Billings, Montana. If you have a mortgage and other deductible expenses, we can make sure to get you the biggest refund available. If you are a business owner and need other services like monthly accounting, payroll services, or more, then let us know and we can help you out. Call 406-894-2050 to learn more.

Three Essential Business Skills to Success

Business-Taxes-300x199As a business owner you know the struggles. You understand the hard parts of running a business, and you understand the joys of running a business. If you find that you are struggling more often than not, you might need to take a step back and look at your leadership, managerial, and entrepreneur skills. There is a good chance that you are tackling your business from the wrong angle, and you have forgotten to apply these three essential skills as a business owner. Keep reading as your accountant in Billings, MT explains those skills.

 

 

Essential Business Skill: Sales

Mark Cuban once said, “In business you’re always selling – to your prospects, investors, and employees.” But what do those sales skills look like? They’re dramatically different from being a salesman.

Sales skills could be reworded as people skills. As a business owner, you constantly have to know how to interact with people. But at the same time, you constantly need to be sharing your vision and your passion with those people. That is where your interactions become sales interactions.

When you are first starting out on your business venture, you have to have the skills needed to sell your idea to your investors. Whether you are getting money from individuals, venture capitalists, or the bank, you have to sell your idea.

When you are running your business you have to sell to your prospects. They need to know why your product or service will make their life better. At the same time, you have to keep your employees passionate about your business. You must sell them on the dream.

Even when things are looking great, you have to keep selling. Employees will turnover; you have to sell the new ones. Prospects come and go; you have to sell to stay alive. A new opportunity may pop up; you have to sell to see the dream become reality.

Selling is instilling your passion into others.

Essential Business Skill: Planning

If you want to run a successful business, you have to start with a business plan. No matter what people say, a business without a plan will not know how to overcome obstacles when they come up. It all starts with setting goals.

Before you launch your business, before you register your business name, before you even think about opening a store, you have to have goals. As humans we are fickle. When we don’t have goals to meet, we don’t do anything. Without a goal for your business, personal, and financial life, you will just keep floundering along.

After defining your goals, you need to get an idea together that will help you meet those goals. This business plan should include everything you can possibly think of. You need to make a plan to meet those goals, but you also need a plan of what you will do if you don’t meet those goals. You need a plan of what to do if you exceed your goals. You need a plan of how to overcome the hard obstacles, and a plan of what to do when obstacles present themselves that you couldn’t even imagine.

By making a plan, you will make your business life so much easier.

Essential Business Skill: Focus

There is not a successful business owner out there that isn’t laser focused on their business. We have all met the two types of business owners: the one that is keenly aware of his business and knows exactly what needs done to make it succeed, and the one that is trying to run a hundred directions at once and is always frazzled.

Your focus on your business is what sets you apart from the wannabes. You know your business and what needs done. What that means is that you don’t worry about aspects of your business that someone else can handle. Payroll services? Let your accountant in Billings, Montana do that. IT work? Hire a specialist to be on-call for your computer needs. Website development? There are a lot of website builders out there and others who can optimize your website. The list could continue, but the bottom line is that you focus on your business, let others focus on their business, and work together to benefit everyone.

By being laser focused on your business, and letting others take care of items outside your area of expertise, you can grow substantially.

Practical Taxes is a full service accounting firm in Billings, MT. We can help you with many of those items that fall outside of your area of expertise, like payroll services, bookkeeping, and more. By letting us handle the things you are not familiar with, you will have more time to grow your business.

Filing Your Taxes Late, is it Worth it?

File-your-Taxes-Late-300x220With only 2 days until your taxes must be completed and submitted, there is a good chance that you might not be able to get around to filing on time. Don’t worry; you do have some options here. But keep in mind that filing your taxes late should not be one of those options. Your accountant in Billings, Montana looks at what happens if you file late, and what you should do to avoid filing late.

Filing your Taxes Late

If you absolutely must file your taxes past the April 15th deadline, then you should file them as soon as you can to avoid racking up late fees, interest, and other penalties. The IRS wants your tax return, and they will accept late tax returns no matter when those returns come in. Keep in mind that most people get a tax refund, if you simply don’t do your taxes, you risk forfeiting that refund.

The good news is that if you are eligible to receive a tax refund, there is no penalty for filing your taxes late. But the longer you wait without claiming that refund, the longer the government gets your money and doesn’t owe you any interest; your 2014 taxes must be filed by April 15th 2018 or that refund is forfeited to the US Treasury.

The bad news is if you owe money on your taxes. Now there are two different fees here, a failure-to-file fee and a failure-to-pay fee. They are vastly different.

Let’s suppose that you owe $1,000 on your taxes.

If you don’t file your taxes on time, you are going to be hit with a failure-to-file fee. This fee is 5% of the amount that you owe on your taxes, every single month. So in our scenario if you file 1 day late, or 30 days late, you owe an additional $50. That amount caps off at 25%, but you will still be hit with the failure-to-pay penalty.

If you file your taxes, but you can’t afford to pay what you owe (and if you didn’t set up a payment plan) the IRS will still ding you. This ding isn’t nearly as bad as simply not filing though and comes in at a mere .5% per month interest. So if you miss paying by up to a month, you owe an additional $5 for our situation. This amount will cap off at 22.5%.

There are some other increases, maximums, and scenarios and those will vary depending on your situation, but the bottom line is this: if you owe money, and you fail to file your taxes, you can expect to pay an additional 5% each month until things are paid off.

Don’t File Your Taxes Late

You still have plenty of time to file your taxes if you do them yourself (TurboTax offers a free online program if you meet the qualifications), or you can always file an extension. Learn more about how to file an extension on your tax return.

Give us a call at 406-894-2050  to see if your accountant in Billings, Montana can still squeeze you in before the deadline (chances are slim, but we can help file that extension).

Practical Taxes is a full service accounting firm in Billings, Montana. Like all accountants our crunch time is the first few months of the year, but after tax season is over we don’t close up shop. Throughout the year we are available for business consulting, payroll services, and multiple other accounting needs.

Minimizing Your Taxes When Giving to Charity

Giving To Charity Is More Than Just Giving Cash

IRA-300x199Most people give to charities for two reasons. They love what that charity is doing, and they want to get a deduction on their taxes. Whether they give to a church, a group, or any other 501(c)(3), they will be able to write off what they donate to that group. What many people don’t realize is that the IRS allows donations to be made over and above cash donations. In fact, you can give anything of value and write it off on your taxes. Your accountant in Billings, Montana explains method that lets both you, and the charity of your choice, come out ahead.

Giving to Charity by Donating Securities

Many of us have investments. They are set up in order to grow faster than inflation so that when it comes time to retire (or to use those investments for their desired goal), we have far more than if we had simply put the money into a basic savings account.

The problem arises, however, when it comes time to withdraw those funds. Unless the money is in a Roth IRA, there will likely be large capital gains on the account. This means that you may have to pay a considerable sum in taxes before you can donate the money. Let’s take a look at the math.

Suppose you invest $10,000 and over the next 10 years that grows to $100,000. You don’t need the money, and you have a charity that could use it. So you cash in your investment. Unfortunately there is $90,000 worth of growth; resulting in about $13,500 in capital gains taxes (at 15%, your tax rate may vary). So you really can only give your charity $86,500. There is a better way.

You can donate $100,000 worth of stock (or other securities) to that charity, even if there are significant gains in the account. Here is where it gets good.

When the securities change hands, the cost basis doesn’t go with them. So even though you only paid $10,000, the new basis is $100,000. Your charity can sell the investment, and not worry about any taxes on it. You get to write off the full $100,000; they get to keep the full $100,000.

In our first scenario, you get to write off $86,500 on your taxes, helping you save $21,625 (minus the $13,500 you have to spend you have a net tax savings of $8,125). In our second scenario you write off $100,000 helping you save $25,000 off your taxes. These, of course, are assuming a 25% tax bracket.

Keep in mind there are some limitations on this method. You can read all about those limitations on the IRS website. Of course, you probably don’t want to spend your time doing that, so when tax season is approaching, you can just ask your accountant in Billings, Montana what to do.

Practical Taxes

Practical Taxes is a full service accounting firm in Billings, Montana. Tax season is drawing to a close, but it is never too early to start preparing for next year’s taxes. If you have accounting needs, including tax preparation, online payroll services, business consultation, or the like, schedule an appointment by calling 406-894-2050.