Category: Tax Planning

Payment Options If You Owe The IRS

Owing money to the IRS is a stressful predicament, but one that many Americans find themselves in each year. Being indebted from years prior can put a strain on your present-day budget, and make it challenging to plan for future purchases. So, if you do owe the IRS money, what are your choices? Thankfully, there are many options for taxpayers out there, each with its own pros, cons and protocol.

Option 1: Pay Your Balance In One Lump Sum
If you are able to, paying your taxes in one lump sum before the annual tax deadline is your best option for avoiding any penalties or interest. For each month your debt remains, you incur compounding 5 percent interest, which will increase to as much as 25 percent after 6 months. This means that if you don’t pay a $3,000 tax bill, you could owe as much as $2,250 in interest, in addition to the balance, after six months.

Option 2: Settle Your Balance In Two Payments
If you can make half of your payment now and half within 45 days of the tax deadline, you can send a partial payment using the Form 1040-V. The IRS will contact you to let you know how much of your balance is left over, and any other fees you owe. Pay your second amount (either by check, direct deposit or credit card) within the 45 days.

If you decide to pay with your credit card, be sure you will be able to fully pay the balance on your card. The outstanding balance may impact your credit and, depending on where you are at with the IRS, your interest payments may be even more coming from your creditors than the IRS.

Option 3: Petition The IRS To Enroll In An Installment Plan
Know you won’t be able to make your payment this year, but anticipate being able to pay it within six years? An installment plan may be the right option for you.

The IRS does not give this option to everybody, so be sure to make your offer sound. Most first-time applicants are accepted, and as long as you fulfill your promise to the IRS, this can be a great option for many taxpayers.

Option 4: Apply For An Offer-In-Compromise
For those who owe more than they will ever be able to pay, the IRS offers an offer-in-compromise option. The IRS will evaluate your unique situation, and determine if you qualify to pay less than what you owe. They will forgive an agreed upon amount, which can be negotiated between you and your tax representative.

Regardless of which route you take, know that you are not alone. Many people find themselves indebted to the IRS, which is why they have created these options for you.

Interested in talking to a tax expert about which option is best for your situation? Donohoo Accounting Services has been preparing tax returns and helping small businesses with their financial needs for more than two decades. For questions or more information, contact Donohoo Accounting Services today for your free consultation. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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How Tax Filing Will Be Different In 2021

The coronavirus pandemic brought unforeseen challenges to all aspects of business around the world, so it should be no surprise that it will impact this year’s taxes as well. Coronavirus legislation and inflation adjustments changed some of the most influential tax rules. Here is what you can expect to be different when you file your taxes this year.

February 12 is the opening date, and April 15 is the deadline

The first day to file in 2021 is February 12. We were all given a tax filing extension last year, but we’re back to April 15 for 2021. That doesn’t mean you can’t get an extension; but remember that being granted an extension only gives you more time to file your taxes, not more time to pay what you owe.

Charitable Deduction

The CARES Act allowed taxpayers to deduct up to $300 in monetary deductions in 2020 even if they chose to take the standard deduction. This was the IRS’s way to encourage Americans to contribute more money to charity during the pandemic.

Higher HSA Limits

Contributions limits for HSA-eligible workers who elected to participate in high deductible health insurance policies increased by $50 for self-only coverage (from $3,500 to $3,550) and by $100 for family coverage (from $7,000 to $7,100).

Higher Retirement Account Contribution Limits

Some workplace retirement accounts have higher contribution limits in 2020, so be sure to check yours. To illustrate, 401(k) plans had a base contribution limit of $19,000 in 2019, but that increased by $500 to $19,500 in 2020. For those who are age 50 and older, the catch-up contribution limit increased by $500 also, from $6,000 in 2019 to $6,500 in 2020. This means that if you are age 50 or older, you could potentially contribute a total of $26,000 ($19,500 + $6,500) to a 401(k) plan in 2020.

Higher Standard Deductions

Each year the IRS adjusts the standard deductions for inflation. This reduces the amount of income that is subject to federal taxes. In 2020, the IRS raised the standard deduction by anywhere between $200 and $400. The breakdown is as follows:

  • Married filing jointly: (+400 from 2019) – $24,800
  • Married individuals filing separately: (+$200) – $12,400
  • Head of household: (+$300) – $18,650
  • Single: (+$200) $12,400

Donohoo Accounting Services realizes these changing tax rules are hard to understand and stay on top of. When it comes time to file your 2020 taxes, you don’t have to do it alone. We are here to help you realize and take advantage of every tax deduction you are entitled to. We have been filing tax returns for individuals and small businesses for more than 20 years, so we are well versed in tax laws and rules and can help save you money, time and headaches.

If the thought of filing taxes fills you with dread or stress, please call Donohoo Accounting Services at 513-528-3982. We can handle the details and ensure you are receiving the tax credits, deductions and refunds you deserve. For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

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6 Common Mistakes Business Owners Make on Their Taxes

Filing your small business’s tax return may be a dreaded task you’re tempted to put off until April 14, but we advise that you don’t. That’s because mistakes are made when you’re in a rush, resulting in interest charges, penalties or unwanted attention from the IRS. Mistakes can be avoided by being prepared and planning ahead. Here are the 6 most common tax mistakes business owners make:

Mistake #1: Filing late

It’s important to file your taxes on time to avoid a 5 percent per month penalty by the IRS (that increases until the return is filed), a 6 percent interest penalty and a late payment penalty. You can request a filing extension, but you will still need to pay a portion by the original due date. It’s better to avoid the headache, be organized and file on time.

Mistake #2: Not paying estimated taxes during the year

If you are a sole proprietor, S corporation, are self-employed or a partner and you expect to owe $1,000 or more when you file a return, you are required to make estimated tax payments throughout the year. The same is true if you are a corporation expecting to owe $500 or more in taxes.

Mistake #3: Not having organized, visible financials

Using Excel to track your income, expenses and receipts might suffice when you are first starting out, but once you get bigger you will need a program that is more robust. Your financials need to be up-to-date, accurate and all in one place so you can make good tax and cash decisions.

Mistake #4: Intermingling personal and business expenses

It’s important to keep your business expenses separate from your personal ones. You can do this by having a separate bank account and credit card for your business, and always use your business credit card for business expenses. Even if you purchase both personal and business items at an office supply store, use different credit cards to pay for them so you can keep those expenses separate.

Mistake #5: Not tracking expenses

Throughout the year you need to save receipts, log the business miles you put on your car and track your expense categories. Did you know that only 50 percent of certain business meals are deductible? Platforms like QuickBooks and Freshbooks can help you keep track of expenses, and apps like MileIQ can track your business mileage.

Mistake #6: Not getting professional help

It may be tempting to save money and do everything yourself, but unless you know what you are doing, it could cost you time, money and headaches in the end. Consider consulting with a bookkeeper or accountant throughout the year to make sure you have good processes in place come tax season.

Donohoo Accounting Services has more than 20 years of experience helping clients with their tax and financial issues. Advising small businesses on their taxes is what we do best. If you have any questions about preparing your taxes or would like to know more about the services we provide, please call us at 513-528-3982 for a free consultation.

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Year-End Tax Moves To Make Now

Most people don’t think about taxes when it’s not tax season, but you absolutely should. 2020 has been unusual in every way, and the upcoming tax season will likely follow suit because there are tax moves you can make before the end of this year that will benefit you once you file. Here are a few that we suggest:

Track receipts

If you are self-employed and working from home, you can deduct your office space (it has to be used just for work) and any expenses you incur. If your income was lower than usual but your medical expenses were higher, you might qualify for deduction. Best practice for 2020? Save your receipts.

Don’t forget about other taxable income

Many people were furloughed or lost their jobs this year because of the stay-at-home order. If you picked up a side hustle to make ends meet, your earnings are considered taxable income, even if you don’t have official paperwork that details the money. Unemployment benefits are taxable, too. If you received any of those, you’ll have to fill out a 1099-G form and enter those amounts on your tax return. If withholdings weren’t taken out of those payments, you’ll have to make up for it when calculating your 2020 estimated tax payments.

Max out for retirement

If your income went up this year, it’s the perfect opportunity to reduce your tax liability by increasing your contribution to your retirement account.

Conversely, if your income went down and you had to borrow from your retirement account, you won’t pay penalties but you will have to account for that on your taxes for the next three years.

Make the most of your savings

If the stay-at-home order resulted in prepaid vacation refunds, fewer travel expenses or less spending in general, you may find yourself with a slightly larger wallet. If that’s the case, make the most of that money by investing it now in a long-term savings account, such as a 529 or Roth IRA.

Check your withholdings

If your income has changed, check your paycheck to make sure you are withholding enough for federal taxes to avoid penalties and interest to the IRS. The IRS has a tool to help you do this, but you will have to manually calculate it for your state withholdings.

Revisit your stimulus eligibility

If your income decreased in 2020, you might qualify for the stimulus payment made available from the CARES act, even if you didn’t qualify in 2019 or 2018. There will likely be extra documentation to fill out with the IRS Form 1040. The credit will automatically be applied if you are eligible.

We understand that tax filing can be overwhelming in the most normal of situations, so it will be especially challenging when filing for this year. We also know you have a life to lead and business to run, so let us handle your accounting issues and headaches. If you have any questions about what you should be doing now for the upcoming tax season, please reach out to Donohoo Accounting Services today at 513-528-3982 for a free consultation.

For more tips and our latest updates, check us out on Facebook, Twitter or LinkedIn!

contact Donohoo Accounting