How Do You File an Amended Tax Return?

Its’ easy to make mistakes when you’re doing your own tax preparation. The IRS has a special procedure for fixing them.

 

That sense of accomplishment you feel after you’ve filed your income taxes can turn quickly to dread if you realize later that you made a mistake. What do you do now?

The IRS knows that this will happen to some taxpayers every year. The tax code is so complex, and if you prepare your taxes manually, you’ve probably been shuffling a lot of papers around.

So, first: Don’t panic. You can fix this. The IRS offers what’s called an amended return, the Form 1040X, for just this type of situation.

If you’ve made a mistake on your income tax return, you’ll be able to file a Form 1040X.

What IRS forms does the 1040X cover?

If your original tax return was filed using a Form 1040, 1040A 1040EZ, 1040NR, or 1040NR-EZ, you should file a Form 1040X to amend that return.

 

What if I realize I made a math error?

The IRS will make the necessary corrections, so you usually don’t need to file an amended return. However, you should submit one if there was an error related to your filing status, income, deductions, or credits.

 

I forgot to file my Schedule B. Should I file an amended return?

Usually, no. The IRS will request missing forms and schedules from you.

 

Can I file a Form 1040X electronically?

No. You must submit a paper return.

 

How much time do I have to file a Form 1040X?

You can usually file an amended return up to three years after the date on your original income tax return or within two years of actually paying the taxes – whichever date is later. Look at the above image of the Form 1040X. You must indicate the year of the return you’re amending by checking a box or entering a year after This return is for calendar year…

 

What if my amended return entitles me to an additional refund?

Don’t file a Form 1040X until you’ve received the first refund. Once that’s in hand, you can file the amended return and cash the check. Keep in mind that it can take up to 16 weeks for the IRS to process an amended return. It may not even appear in the system for three weeks after you’ve mailed it.

The IRS Form 1040X uses a three-column approach to help you illustrate where errors have occurred. 

I realized that I owed more income tax than I sent, but it’s only March. Can I file a 1040X and include the additional funds?

Yes, as long as it’s received by the April due date for that specific year. You’ll avoid taxes and penalties.

 

Can I check on the progress of my amended return?

Yes. Go to this IRS page. You’ll need to supply your birthdate, Social Security number, and Zip code. You’ll be able to view the status of your return: received, adjusted (refund, balance due, or no changes), or completed.

 

Accuracy and Thoroughness Critical

The Form 1040X is not the most complicated of the standard IRS forms, but neither is it the simplest. It’s critical that you complete it absolutely correctly, so you don’t start having to amend your amended returns.

The completion of your Form 1040X can be delayed for a variety of reasons, including the presence of errors. It may take more than 16 weeks to process because it’s:

  • Incomplete
  • Unsigned
  • A victim of fraud or identity theft.
  • In need of additional information.

 

Avoiding Amended Returns

We can help you determine whether you need to file an amended return at all, and if so, how you should fill out the form.

If you don’t want to risk going through this whole thing again, talk to us about getting you started with year-round tax planning. It makes the whole tax preparation process (which we can handle for you, too) much easier and less stressful. We’ve worked hard with other individuals and small business to minimize their tax obligations, and we can do the same for you.

Preparing for 2017 Taxes: 5 Things You Can Do Now

Your income tax obligation needs to be on your mind year-round. Here are some ways you can get a jump on your 2017 taxes.

Summer’s over. The kids are back in school. And soon, there’ll be only three months left in 2017. If you haven’t started thinking about how to minimize your income tax obligation for this year, there’s still time.

Whether you’re a small business or an individual taxpayer, year-round tax planning is more than just a way to make tax preparation an easier, faster process. By keeping taxes in mind as you go through every 12-month period, you’ll be able to see where you might take specific actions early that will have impact on what you end up owing. Make it a habit, and you’ll find that it just comes naturally to consider the tax implications of purchase and sales decisions.

Create a System

Effective tax planning requires more than just saving receipts and organizing tax-related documents in physical or digital file folders – though that’s a good start. Create a system in early January that you can maintain throughout the year (of course, a lot of your information will be stored in your accounting or personal finance application, if you use one). But you should be saving statements, receipts, sales forms – anything related to your income and expenses that will eventually feed into IRS forms or schedules.

Evaluate Your Expense-Tracking

Businesses: How do you—and your employees, if you have them—keep track of daily expenses? You may have forms like purchase orders and bills for the big ones, but you probably buy things on occasion that are just documented by paper receipts. How do you categorize and organize these so you won’t miss any when it’s time to complete a Schedule C? Is there a better way?

Do any of your employees make trips on behalf of your business? You really should consider subscribing to an online service that automates the process of creating and approving expense reports. If you’re not aware of these options, ask us.

Know Your Tax Forms

Individuals and businesses file some of the same forms and schedules, but some, of course, are different. Your previous years’ tax returns can be good resources for you. Refer to them occasionally as you go through the year and do some comparing, especially if you must pay quarterly estimated taxes. You may not remember from year to year what’s deductible and what’s not. Revisiting your returns will jog your memory and remind you.

Consider Generosity

Are you having a good year? You’ll have an idea of how your financial health is if you’re keeping up with income and expenses. You don’t have to wait until the end of the year to do any charitable giving that you’re going to do (although it’s usually best to hold off until the fourth quarter).

Learn How Changes Will Affect Your Taxes

This is so important for individual taxpayers. Did you get married or divorced, or have a child? Did you move? Buy or sell a home? Get a raise or, conversely, lose regular income for some reason? Did you have educational expenses? All these life events—and more—can change your income tax obligation.

Businesses often experience major changes, too, and your financial state at the end of the year is way harder to predict than it is for an individual with W-2 income. Stay on top of the impact of deviations in income and expenses created by events like the introduction of new products (or the loss of existing ones), personnel fluctuations, and major acquisitions.

Comprehensive Planning

Tax planning should be an element of your overall financial planning. If you have a business or household budget, you’re way ahead of the game. You can compare your actual income and expenses every month to those you built into your budget. A budget can be a tremendous tool as you plan for the current year’s taxes. If you’ve never created one, or if you’ve never stuck to one successfully, we can help you with this.

We’d also be happy to work with you periodically throughout the year on taxes. We can get you set up with financial software if you’re not already using it and advise you on ways to work toward minimizing your 2017 obligation now.

Squire & Company Named NetSuite’s VAR of the Month

Squire has been named in the month of August, 2017, NetSuite’s VAR of the month!

Q&A with Reuben Cook at Squire & Company

 

What qualifies your company as the VAR of the month?

As we compiled the results from last year, our NetSuite practice has grown by 627% since the prior year.

 

 

What makes your company successful?

There are two things we believe to be a competitive advantage for our firm as a VAR.

First, we staff our team with individuals who are both accountants and technologists. Most of our advisors are CPAs and hold certifications in the products they support. Our clients appreciate our consultants’ understanding of both the business processes and the accounting impact as they carry out the technical configuration.

Second, we take a process-oriented approach to our implementations, which extends beyond the application itself. To ensure a successful go-live, the users should understand the business process before it enters the system, the process within the system, and what happens after the system. A lot of implementers focus their implementation around functional areas and don’t even ask about anything outside of the application. The reality, however, is that business processes span across functional areas, occur in and out of the system, and they need owners to resolve conflicting needs across the functional areas. A good example of this is the purchase of inventory. This procurement process includes Supply Chain, the Warehouse, Accounting, and may include Sales to help identify demand. When all of these functional areas are focused on the process as a team, the ERP will support their business process and not act as a distraction from it.

How are you growing your firm? How do you plan to continue to grow?

Our firm’s ERP success is primarily related to our industry specialties within the Wholesale/Distribution, Manufacturing, Software, and Direct Selling verticals.

We plan to continue this growth by identifying the unique needs of these industries and enhancing solutions specifically designed to meet their common needs. This allows us to provide the depth our clients are looking for, while allowing our resources to be used efficiently from client to client. We provide a holistic approach to include resources beyond just the ERP, including accounting, finance, compliance, tax, and strategic business needs.

What opportunities do you see in the market?

When we look at the ERP market in 2017 and beyond, there is a continued adoption and shift toward cloud solutions. There will be a tipping point soon where most decision makers for ERP initiatives within a company have used or adopted a cloud solution at a previous company. Past experience with a cloud ERP is a huge enabler for future cloud purchases. In 2016, the percentage of companies using on-premise software as a primary financial system dropped to 32 percent. Cloud ERPs are still grabbing market share from on-premise systems for the time being, but will soon be competing against itself, so identifying the best of the cloud will become even more important.

Secondly, the practice of integrating systems together is becoming more and more commonplace. Now that the technology can support effective real-time processing, businesses want their systems in a seamless ecosystem, and sometimes include their business partners within that ecosystem. The days of having independent and disparate CRM, e-commerce, ERP, and warehouse management systems are over. They need to either be under one roof or talk to each other efficiently. Par for the course is evolving and ERP implementers can either get on board or become obsolete.

 

The following article below  is from: https://www.accountingtoday.com/news/squire-company-named-netsuites-var-of-the-month 

Squire and Company, P.C. Named 2017 Accounting Today’s ‘Best Accounting Firms to Work for’

Christopher Miller                                      FOR IMMEDIATE release: 8/8/2017

Squire and Company, P.C.

801-494-6032

chrism@squire.com

Orem, UT: Squire and Company, P.C., was recently named as one of the 2017 Accounting Today’s Best Accounting Firms to Work for. Accounting Today has partnered with Best Companies Group to identify companies that have excelled in creating quality workplaces for employees.

 

This survey and awards program is designed to identify, recognize and honor the best employers in the accounting industry, benefiting the industry’s economy, workforce and businesses. The list is made up of 100 companies.

 

To be considered for participation, companies had to fulfill the following eligibility requirements:

  • Must be an accounting firm.
  • Have a facility in the United States;
  • Have a minimum of 15 employees working in the United States;
  • Must be in business a minimum of 1 year

 

Companies from across the United States entered the two-part survey process to determine Accounting Today’s Best Accounting Firms to Work for. The first part consisted of evaluating each nominated company’s workplace policies, practices, philosophy, systems and demographics. This part of the process was worth approximately 25% of the total evaluation. The second part consisted of an employee survey to measure the employee experience. This part of the process was worth approximately 75% of the total evaluation. The combined scores determined the top companies and the final ranking. Best Companies Group managed the overall registration and survey process, analyzed the data and determined the final ranking.

 

“It is a great honor to be recognized as one of the “Best Accounting Firms to Work For”.  We strive to create a culture and an environment where our team members can thrive professionally, personally and as a part of our local communities” said K. Tim Larsen, Managing Partner of Squire and Company, P.C. “Our people are our number one asset and any efforts made to facilitate growth and development are returned many times over as we serve our fantastic clients. We are constantly trying to improve our culture, our environment and the individual development of our people”.

 

For more information on Accounting Today’s Best Accounting Firms to Work for program, visit www.BestAccountingFirmsToWorkFor.com. To see the full list, visit https://www.accountingtoday.com/news/accounting-today-names-2017-best-firms-to-work-for 

 

 

 

-END-

Tax-Deductible Expenses: Are You Recording All of Them?

2017 income tax preparation seems a long way off. Make it easier by tracking all the deductions you can take.

You’ve heard it said before: Tax planning should be a year-round process. It’s so true. Your life will be a lot easier early next year when all your tax forms start rolling in.

Forms like 1099s and W-2s do a lot of the tracking for you. You only need to transfer data over to your IRS tax forms and schedules. But what about the daily stuff, the expenses you incur as a part of your workday that no one else is documenting? There are a lot of tax-deductible costs that can really add up when it’s time to file.

The IRS has two criteria for evaluating the validity of business expenses. First, is it ordinary? Is it something that other companies in your trade or profession would commonly buy? Second, is it necessary? Is it “…helpful and appropriate?”

Warning: Some expenses that you think might be deductible are not. Obviously, you can’t claim the costs of personal items. The IRS specifies two other types of expenses that can’t be deducted: Capital Expenses and those used the calculate the Cost of Goods Sold. Questions? Ask us.

 

Pulling together all that numbers required for the IRS Schedule C can be challenging. Let us know if you have questions.

 

Here are some examples of expenses that you might not consider, but which should be recorded as they occur so you don’t forget about them come tax time.

 

Advertising and Promotion

Some of these expenses are obvious. For example, you might report printing costs for brochures, ad space bought, and postage for mailers and other business correspondence. But there’s much more that fits into this category. Think about everything you do that helps promote your business, like expenses related to:

  • Business cards
  • Team sponsorships
  • Your website (including startup and maintenance fees)
  • Graphic design
  • Workshops/webinars

 

Insurance

Do you have any kind of business insurance, like liability or malpractice? Your premiums are deductible.

 

Car and Truck Expenses

Understandably, you can only deduct expenses for miles driven for business purposes. If you have a vehicle—either owned or leased—that you also use for personal driving part of the time, you’ll need to track those two separately.

There are two options for calculating business mileage: Actual Expenses and Standard Mileage. To calculate the latter, you’d multiple the number of business miles driven by 53.5 cents for tax year 2017, then add tolls and parking fees. The Actual Expense method is more complicated; it involves many costs, and recognizes depreciation of the vehicle. Check with us if you’re planning to claim expenses for a car or truck, as there are additional rules governing this deduction.

 

Postage and Office Supplies

Yes, they’re deductible if you need them for your business.

 

Meals and Entertainment

Familiarize yourself with the rules for this one. They’re complicated, and the IRS looks closely at such deductions.

 

Business Use of Your Home

Ditto. There are all kinds of regulations, restrictions, and exceptions here, even if you use the simplified method that the IRS introduced a few years ago. Further, the home office deduction can be an audit red flag.

The rules are very specific and very rigid. For example, even if you use your home’s land line for business, you can’t deduct it. Add another line for business, and you can.

 

Professional and Legal Fees

If you pay an individual or firm for services provided to help you operate your business, those fees are often deductible. This includes lawyers, accountants, and tax preparers, of course, but as always, there are exceptions. You can’t usually, for example, deduct attorneys’ fees if you were getting legal help to buy business assets.

 

Dealing with Details

As you can see, there are many allowable business expenses that require meticulous recordkeeping. You can, of course, do this on paper or in a spreadsheet. There are cloud-based applications specifically designed for this purpose. If you’re interested in checking these out, let us know. We’re always available to help you plan for future tax filings.

 

Hired Your First Employee? Your Tax Obligations

It’s a major milestone for you, but it comes with a lot of paperwork that must be done correctly.

Bringing a new employee into your business is reason to celebrate. You’ve done well enough as a sole proprietor that you can’t handle the workload by yourself anymore.

Onboarding your first worker, though, comes with a great deal of extra effort for you at first. You have to show him or her the ropes so you can offload some of the extra weight you’ve been carrying.

But first things first. Before your employee even shows up for the first day of work, you should have assembled all the paperwork required to keep you compliant with the IRS and other federal and state agencies.

 

A New Number

As a one-person company, you’ve been using your Social Security number as your tax ID. You’re an employer now, so you’ll need an Employer Identification Number (EIN). You can apply for one here.

The IRS’s EIN Assistant walks you through the process of applying for an Employer Identification Number (EIN).

Once you’ve completed the steps in the IRS’s EIN Assistant, you’ll receive your EIN right away, and can start using it to open a business bank account, apply for a business license, etc.

You’ll also need an EIN before you start paying your employee. It’s required on the  Form W-4. If you’ve ever worked for a business yourself, you’ve probably filled out this form. As an employer now, you should provide one to your new hire on the first day. When it’s completed, it will help you determine how much federal income tax to withhold every payday. If you’re not bringing in a full-time employee but, rather, an independent contractor, you won’t be responsible for withholding and paying income taxes for that individual. You’ll need to supply him or her with a Form W-9.

Note: Payroll processing is probably the most complex element of small business accounting. If you don’t have any experience with it, you’ll probably want to use an online payroll application. After you’re set up on one of these websites, you enter the hours worked every pay period. The site calculates tax withholding and payroll taxes due, then prints or direct deposits paychecks. Let us know if you want some guidance on this.

Don’t forget about state taxes if your state requires them, and any local obligations. The IRS maintains a page with links to each state’s website. You can get information about doing business in your geographical area, which includes taxation requirements.

 

More Forms

You also have to be in contact with your state to report a new hire (same goes if you ever re-hire someone). The Small Business Administration (SBA) can be helpful here, as it is in many other aspects of managing a small business. The organization maintains a list of links to state entities here.

All employees are required to fill out a Form I-9 on the first day of a new job.

New employees must also prove that they’re legally eligible to work in the United States. To do this, they complete a Form I-9 from the Department of Homeland Security. As their employer, you’re charged with verifying that the information provided is accurate by looking at one or a combination of documents (U.S. Passport, driver’s license and birth certificate, etc.). By signing this form, you’re stating that you’ve done that.

You can also use the U.S. government’s E-Verify online tool to confirm eligibility.

 

A Helping Hand

The Department of Labor has a great website for new employers. The FirstStep Employment Law Advisor helps employers understand what DOL federal employment laws apply to them and what recordkeeping they they’re required to do.

Please consider us a resource, too, as you take on a new employee. Preparing for a complex new set of tax obligations will be a challenge. We’d like to see you get everything right from the start.

A Tragedy at Squire

Liz Bawden passed away suddenly in California on June 2nd, 2017, while traveling for business. Her contagious laugh and eternal optimism and enthusiasm will be remembered by all who had the pleasure of interacting with her. She was a valued member of our team since 2015, and she will be missed. Liz left behind three children: Gabby, Ryan, and Brett. Funds collected will go to help support them. http://www.youcaring.com/lizbawden

6/15/17 Update –

Liz’s funeral will be held Saturday, June 17 at 12:00pm at the Deer Creek Ward (1102 South Center Street, Midway, Utah).  There will be a viewing Friday, June 16 from 6:00pm to 8:00pm and from 11:00am to 12:00pm on Saturday (one hour prior to the funeral), both at the Deer Creek Ward.

 

Her obituary can be found at: http://www.legacy.com/obituaries/deseretnews/obituary.aspx?n=elizabeth-bawden&pid=185781732

 

-Squire

Are You Protecting Yourself from Tax Identity Theft?

The IRS has thwarted some identity theft attempts, but thieves are still stealing billions of dollars every year from taxpayers.

 

Another annual income tax deadline has come and gone. Maybe you had to pay in, but perhaps you were owed a refund. If the latter is true, did you receive it?

A lot of taxpayers didn’t, because hackers swooped in and stole their sensitive tax-related information. Tax identity theft is a serious problem, despite the IRS’s efforts to stop it.

But there are steps you can take to keep from being a victim, some of which are simply a matter of common sense.  For example, consider the security of any wireless network you use when you’re working on your taxes. Don’t ever do so on a public network, and make sure your home or office wireless is password protected.

Offline Risks                 

You don’t have to be online to be at risk for tax identity theft. Hackers can grab your personal information in other ways. For example, do you ever carry your tax-related papers back and forth to work or some other location? Know where they are at all times; don’t ever leave them laying around where someone can copy your Social Security number and other details.

 

Always be aware of your surroundings. If there are other people around when you’re working on your taxes—if you’re in a coffee shop or library, for example—make sure no one is reading over your shoulder.

Phone calls can be risky. A good rule of thumb is never provide someone who calls you with any sensitive personal data – unless you can verify it was a call you were expecting, like one from your bank or a medical office. When you place a call to a legitimate number, it’s generally okay.

Other Traps

You’d think that a call from the IRS would be safe. In reality, the IRS doesn’t ask for personal information over the phone. They send letters through the U.S. Mail. If you ever get a phone call from someone who claims to be from the agency and is demanding some sort of payment immediately, hang up. This is a popular phone scam. You can always contact the IRS directly to see if there is some sort of issue.

Don’t make a practice of carrying your Social Security card with you. Keep it in a safe place unless you absolutely need it away from home for some reason. Also:

  • File your return early to keep a hacker from getting in line for your refund in front of you.
  • Reduce your refund by adjusting your withholdings at work. It’s nice to get that big payment after you file, but couldn’t you use that money throughout the year?
  • Request direct deposit of your refund. That way, no one can steal your check out of your mailbox or somehow re-route a paper payment.

Online Thieves

Be especially careful if you’re preparing your taxes on a website. Before you even begin, investigate the publisher’s security protocols to ensure that your very sensitive tax-related data will be treated with great care. Also, update any applications that will be involved, including your browser and antivirus/anti-malware tools.

The IRS will never send you an email out of the blue asking you to click a link or download an attachment or fill in fields to update personal information. In fact, it’s a good idea to avoid taking those actions anytime unless you’re expecting an email and can verify the sender’s address.

Finally, use a very strong, unique password, one you don’t use anywhere else. You’re probably tired of hearing that piece of advice, but it’s absolutely critical when you’re working with a tax preparation application.

Take Action Quickly

It’s possible to get stung by a tax identity thief even if you’re being careful. If it happens to you, you’ll need to complete and submit IRS Form 14039, Identity Theft Affidavit, and watch for responses from the agency. Contact your credit bureaus and financial institutions to apprise them of the situation. Tax identity thieves sometimes try to open new credit cards, for example. You should also file a report with the FTC.

Recovering from tax identity theft isn’t a quick process nor an easy one. If you have questions about it or simply want to talk to us about your year-round tax planning and preparation process, be sure to contact us.

Do You Need to Worry About Being Audited?

The question has probably crossed your mind this tax season. What’s the reality?

Unless you filed an extension, it’s likely that your annual tax preparation marathon is over. Whether you did your taxes yourself or had a professional complete your return, you probably breathed a sigh of relief as they were filed.

At the same time, you may have been thinking about some tax-related issues that weren’t so pleasant. Did I declare all my income? Was I entitled to the deductions I claimed? What about credits? Should I really have taken them?

And then the big, ugly one hits: What if I get audited?

Multiple Reasons

Even if you are certain you completed your forms and schedules with absolute accuracy, here’s some bad news: You can be audited if your return is chosen at random, or as the result of the IRS’s computer screening. The latter looks at your numbers and compares them to what is considered the “norm” for returns similar to yours.

Hopefully, you won’t have to revisit your 2016 tax return. A random audit is possible, though.

You can be audited if you have investors or business partners who’ve been selected for audits. The IRS also looks for specific red flags, such as unusually high or low numbers in certain areas, as well as other situations.

Communicating with the IRS

If you’re selected for an audit, how will you find out? The answer to that question is very important. The IRS will only notify you via a letter that arrives in the U.S. Mail. The IRS will not email you nor call you on the phone.

Imposters claiming to represent the IRS have scammed hundreds if not thousands of people via phone or email contact. These scammers often insist that you owe money (even if you don’t believe you do) and that you must settle your debt immediately or face dire penalties.

In the case of email, scammers may not even ask for money. They want any personal information they can get about you, especially your Social Security number. For example, they may ask you to  validate your personal information. Never click on any links or open any attachments in such messages. If you’d like, you can report it to phishing@irs.gov.

How Audits Work

You won’t necessarily be sitting across a desk from an IRS agent for an audit, though you may be. Some audits are conducted in person, at places like:

  • An IRS field office
  • An accountant’s office
  • Your home, or
  • Your place of business

Sometimes, audits are even conducted long distance through the mail.

What You’ll Need

Obviously, the IRS is going to want to see documentation for the information you provided on your tax return, records of income, expenses, itemized deductions, etc. This is why you’re urged to take such care with your historical tax returns. The IRS recommends that you keep copies of everything for at least three years from the date of filing. This includes things like receipts and bills, canceled checks, medical and dental records, and legal papers.

The IRS can require a six-year history for audits if it finds what it calls a “substantial error.” But if you’re going to be audited, it’s more likely to be within two years.

Three Possible Conclusions

What happens when the audit is complete?

  • No Change. The IRS determines that there were no errors or misstatements in your return.
  • The IRS finds reason to make changes to your return, and you agree that they’re warranted.
  • The IRS finds reason to make changes to your return, but you don’t agree with their findings.

With the third situation, you have three options. You can go through the IRS’s Alternative Dispute Resolution (ADR) program, which provides mediation services. You can file an appeal. You can also simply request a conference with an IRS manager.

Regardless, don’t attempt to  go through an IRS audit alone. If you’re selected, Squire can walk you through the entire process and give you the professional representation you should have.

Paying Estimated Taxes? When You Should

It’s not just the self-employed who must submit estimated taxes. IRS obligations are pay-as-you-go.

Much as we may grumble about them, estimated taxes and payroll withholding are good things. Imagine preparing your taxes in April having not paid in anything through the 12-month tax period. Chances are, a large percentage of taxpayers would be filing extensions (which doesn’t get you off the hook for paying by the April deadline: You’re still expected to submit an estimate of the tax due).

If you’re a salaried or hourly employee of a company, it’s up to your employer to collect and submit an estimate of your income tax obligation every pay period, based on the withholding information you provided on your W-4.

1040-es 2017

The number of allowances you claim affects how much money is taken from each paycheck for taxes. If an insufficient amount is withheld, you may need to pay estimated taxes to avoid penalties.

But if you’re a freelancer or contractor who has no money withheld, the burden is on you. The IRS expects you to do the same thing an employer would: periodically (every three months) make a payment that approximates what you would owe for that quarter. Then, like everyone else, you’ll include that information when you prepare your income taxes, at which time you’ll either get a refund or have to pay in.

Warning: We’ll tell you up front: Calculating estimated taxes is difficult, and the IRS rules and exceptions are complex. If you’ve never gone through this process before, or if your financial situation is changing in 2017, we recommend you gather up your income and expenses, and let us help you with this.

Everyone Is Subject

What this means is that the IRS expects all taxpayers to keep up with their taxes throughout the year. If you’re not having enough taken out of your paycheck, you should be submitting estimated taxes. You’ll avoid paying penalties, and you probably won’t have to file an extension.

Even if your withholding is working well for you, there may be times when you have extra money coming in because of things like alimony, interest and dividends, and prizes. You’ll need to factor this into your income. If you’re a sole proprietor, partner, or S corporation shareholder, and you believe you will owe $1,000 or more in taxes for the 2017 tax year, you’re expected to make quarterly payments. For corporations, the cutoff amount is $500.

Note: The IRS has different requirements for farmers, fishermen, certain household employers, and some high-income taxpayers.

w4

Unless you’re paying electronically, you’ll need to visit this IRS page to print your estimated tax vouchers.

A Complex Calculation

Unfortunately, there’s no magic formula for calculating the estimated taxes you should pay every quarter. That’s why they call them “estimated.” And changes to the tax code aren’t finalized by Congress until the end of the year, by which time you should have made three payments (April 18, June 15, and September 15, 2017; your final quarterly payment is due January 16, 2018).

You can use the worksheet that the IRS supplies (you’ll find payment vouchers here, too). If you’re using accounting software or a website, it’ll be much easier to assemble the numbers. (And if you’re still doing your accounting manually, we can help get you set up with a solution that works for you.) If your financial situation hasn’t changed much since the previous year, you could use your most recent return as a model.

The IRS offers multiple ways to make your quarterly estimated payments electronically. In fact, the agency encourages it.

 

Don’t Forget State

Do you live in a state that requires you to pay income taxes? If so, you’ll need to check with your state tax agency to see how to handle state estimated taxes. The Small Business Administration (SBA) maintains an online directory that you can consult to locate the appropriate website.

There’s no reason to add penalties to your tax bill when paying estimated taxes can help you avoid that. We’ll be happy to consult with you so you understand your obligation and can fulfill it.