Need more time to file?
Today is the day, or the last day I should say.
If you can’t meet the April filing deadline to file your tax return, you can get an automatic six month extension of time to file from the IRS.
Some things you need to know about filing for an extension:
- An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by todays April 15th midnight deadline, plus a late payment penalty if you have not paid at least 90% of your total tax.
- If your return is completed but you are unable to pay the full amount of tax due, do not request an extension. File your return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due. To apply online for a payment agreement, go to IRS.gov and use the pull-down menu under “I need to …” and select “Set Up a Payment Plan.”
- Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, with the IRS by the April 15, 2009, or make an extension-related electronic credit card payment. (For more information about extension-related credit card payments, see Form 4868.)
- You can e-file an extension request using tax preparation software on your own computer or by going to a tax preparer that has the software. The IRS will acknowledge receipt of the extension request if you file by computer.
- You can use Free File Fill-able Forms to file for an extension. You can access Free File Fill-able Forms via the IRS Web site.
- If you ask for an extension via computer, you can also choose to pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account. You will need the appropriate bank routing and account numbers and must also have available the adjusted gross income from your 2008 federal income tax return to verify your identity.
Related Links:
- Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return
- Form 9465, Installment Agreement Request
- Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad
- Official Payments Corporation
- Link2 Gov Corporation
Apportionment Rules for Service-Based Sales
Apportionment Rules for Service-Based Sales
Written By: Cortney Das
When our economy began to shift from manufacturing to service based, the state law had to revise its apportionment rules in order to address this change. The apportionment formula was established in the late 20′s and early 30′s. At this time the economy was dominated by manufacturers and therefore the original rules did not address services. The new rules, however, lack uniformity or clarity thus creating many challenges for taxpayers to comply.
States have employed a variation of two general rules:
A. Cost of Performance Approach
B. Market-Based Sourcing Approach
Cost of Performance Approach
The “cost of performance approach” was introduced by UDITPA. Using this approach, service-based income is sourced to the state in which the “income producing activity” is performed. If the income producing activity is performed in two or more states, this may get complicated.
States that have taken a cost of performance approach have adopted one of three methods for sourcing sales from services. MOST states employ the “all or nothing” concept and attribute the sale to the state in which a greater proportion of the income producing activity is performed than in any other state, based on the “costs of performance.” Other states employ a greater-than-50% test and source the sale to the taxing state if more than 50% of the income-producing activity is performed there. Finally, some states employ the pro-rata cost-of-performance approach in which gross receipts derived from the performance of a service are prorated among multiple states based on the cost of performing the service in each state.
Additional guidance and examples of the terms “income producing activity” or “costs of performance” are provided by MTC Reg. IV.17
Market-Based Source Approach
UDITPA was drafted in 1957. During this time, interstate commerce was rare. Therefore, the cost of performance and the benefit received from a service often occurred in the same state. Today it is standard for service providers and their customers to be located in two different states. The sales factor is intended to measure the taxpayer’s customer base within a given state. The “Cost of Performance” is not an accurate measure of a service company’s customer base (the original intention of the sales factor) therefore more and more states are beginning to adopt the “Market-Based Source Approach.”
The “Market Based Source Approach” attributes the sale of a service to the state in which the benefit is received. In other words, the service income is sourced to the state in which the customer is located. This is similar to the sales factor of manufacturing companies in which sales are sourced to the destination of the sale and not the origin.
The states that have adopted a market-based approach for sales of services include Georgia, Illinois, Iowa, Maine, Maryland, Michigan, Minnesota, Ohio, and Wisconsin. Illinois and Michigan were new to this list in 2008 and this list will continue to grow.
Given the non-uniformity of the states, it is necessary for most multistate service companies to gather the data for both methods. This involves determining the costs associated with the activity, as well as the states in which those costs were incurred and the state in which the benefit was received.
To make matters more complicated, Illinois employs a throw-out rule to its factor. If the taxpayer is not taxable in the state in which the services are received, the sale is excluded from both the numerator and the denominator of the sales factor.
While I have attempted to provide a brief overview of the concepts, this area of state law is more profound and always changing. It is as the economy continues to make the shift towards the service-based economy, it is important for corporate taxpayers to understand and apply the related state apportionment concepts and mechanics.
Congratulations to the Dave O. from Vandalia, MI, he is the winner of the autographed copy of The Truth About Paying Fewer Taxes by Kay Bell. Click on the link to buy your copy.
I have received a copy of “Stand up to the IRS” written by Tax Attorney Frederick Daily. After tax season I will be holding another book giveaway to this title. Mr. Daily has generously agreed to sign a copy and send to the winner. Be sure to look for that after tax season. While you are waiting please visit Mr Daily’s web site. The Tax Law Offices of Frederick W. Daily III
Special Thanks to my guest post author, fellow tweeter (Quornball) and tax professional Cortney Das. This is a great post and a greater help to me during the busy season. Thank you.
What to Do If You Are Missing a W-2
What to Do If You Are Missing a W-2
Okay I can’t take credit for below in red, but figured it needed to be out for all to see. This is IRS TT-2009-28. Word for word. I am putting it here because not everyone will use the IRS for info.
I could have just wrote this little bit but did the copy paste so readers wouldn’t have to go to IRS site.
“taxguys” first book giveaway,
Win a copy of Kay Bells The Truth About Paying Fewer Taxes.
I’ll be posting my review and contest entry info on February 28th.
Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
ü Employer’s name, address, city, and state, including zip code;
ü Your name, address, city and state, including zip code, and Social Security number; and
ü An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
ü Form 4852, Substitute for Form W-2, Wage and Tax Statement (PDF 29K)
ü Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
ü Instructions for Form 1040X (PDF 43K)
If you find you need to use 4852 please read the instructions carefully or
have your tax preparer do this for you.
Flyer "Quick Tips"
Some notes to ponder as the tax season draws near.
Ø The IRS will no longer print and send estimated payment vouchers to taxpayers who use tax software to prepare their returns. Instead you are supposed to use the vouchers that are printed by your software. – meaning if you bought or used Turbo Tax, keep the ES vouchers that are printed.
Ø Go to your tax appointment well organized. Have all your income statements separate from your expenses. Make sure you have all the proper SS numbers for dependents, as well as their names as they appear on their SS cards. Careful organization will save time come tax season. – I have a client organizer to help you or you can find several types of such on the internet.
Ø If you receive/d a notice from the IRS, don’t assume it is correct. Many IRS notices just require more information. Always consult with your tax preparer before you make any payments or send information to the IRS.
Ø Insurance policies that cover medical cost are deductible. Disability and loss of income are not.
Ø When making contributions of used furniture, appliances, and clothing to non-profit organizations, request a receipt from them. Attach a record of the items to the receipt for proof of donation.
Ø If you experienced a casualty loss (flood, fire, theft, etc.) which exceeds 10% of your AGI, ask your tax preparer what information is required to determine your deductible loss, if any.
Ø Your cost basis in mutual fund shares includes reinvested dividends.
Ø Don’t forget to provide your tax preparer with a log of your business, medical, and charitable miles.
o 50.5 cents per mile for business {01/01 thru 06/30,2008}
o 58.5 cents per mile for business {07/01 thru 12/31,2008}
o 14 cents per mile for charitable
Ø The cost for weight-loss programs can be deducted as a medical expense if the tax payer is diagnosed by a Doctor as obese or suffers from some other ailments such as hypertension, where weight loss would relieve the medical condition. Food is not deductible.
Ø Expenses incurred for education for improving your skills for your present job or maintaining your job may be deductable. Things like seminars, tuition, books and some travel can be deductable.
Ø Job-seeking cost in the same field of employment are deductable. Successful job placement is not necessary.
Ø Part of a legal fee incurred in a divorce or an estate plan may be deductable if it is for advice on the tax consequences. Be sure to ask your attorney to clearly indicate how much of the fee was for tax advice.
Ø Keep receipts supporting tax deductions for at least four years.
Ø Improvement cast may reduce taxable profit upon sale of property. Keep records of improvements for four years.
Ø Employers are required to issue W-2s to employees by January 31 every year. – meaning they have until that date to get them in the mail [snail mail].
Ø Are you starting a new business? There are many cost associated with the start-up of a new business that can be deducted after your business opens. To qualify the expense must be one that you could/can deduct as if you were already open. You are allowed to deduct the first $5,000.00 of expenses you incur in the first year you are “in” business. (you’re open). The remainder of your start up cost are deducted over a period of time not less than 180 months (15 years) – meaning if it cost you $6,000.00, the first 5k is an allowed deduction for startup cost, the remaining thousand is spread out over 15 years or $66.66 a year.
Ø If allocated tips are listed on your W-2, the amount will be subject to both Social Security and income tax unless records (tip log) verify that a lesser amount was actually received.
If you know some quick tips please ad them in your comment. Thank you.
Are You sure you are Having Enough Withheld?
How are you supposed to know? This is a re-post for your tax planning needs. A few easy steps and some light planning can help you figure this out.
What you need to know:
If you fail to estimate your federal income tax withholding properly, it may cost you in a variety of ways. If you receive an income tax refund, it essentially means that you provided the IRS with an interest-free loan during the year. By comparison, if you owe taxes when you file your return, you may have to scramble for cash at tax time–and possibly owe interest and penalties to the IRS as well.
When determining the correct withholding amount for your salary or wages, your objective should be to have just enough taxes withheld to prevent you from incurring penalties when your tax return is due. (You may owe some money at the time you file your return, but it shouldn’t be much.) You can accomplish this by reading and understanding IRS Publication 505 and IRS Publication 919, properly completing Form W-4 (and accompanying worksheets), and providing an updated Form W-4 to your employer when your circumstances change significantly.
Form W-4 helps you determine the proper withholding amount
Two factors determine the amount of income tax that your employer withholds from your regular pay:
1) the amount you earn
2) the information you provide on Form W-4.
This form asks you for three pieces of information:
1) The number of withholding allowances you want to claim: You can claim up to the maximum number you’re entitled to, claim less than you’re entitled to, or claim zero.
2) Whether you want taxes to be withheld at the single or married rate: The married status, which is associated with a lower withholding rate, should generally be selected only by those taxpayers who are married and file a joint return. Other people (including those who are married and file separately) should generally have taxes withheld at the higher, single rate.
3) The additional amount (if any) you want withheld from your paycheck: This is optional; you can specify any additional amount of money you want withheld.
When both spouses work and have taxes withheld at the married rate, they sometimes end up with insufficient taxes withheld. If this happens to you, remember that you can always choose to withhold at the single rate. In addition, you can determine the proper withholding amount by completing Form W-4’s two-earner/two-job worksheet.
Complete the worksheets to claim the correct number of allowances
To understand Form W-4, you must understand allowances.
Think of allowances as cash in your pocket at the time that you receive your paycheck. The more allowances you claim, the less taxes are taken from your paycheck (and the more cash ends up in your pocket on payday).
The following factors determine your number of allowances:
1. The number of personal and dependency exemptions that you claim on your federal income tax return
2. The number of jobs that you work
3. The deductions, adjustments to income, and credits that you expect to take during the year
4. Your filing status
5. Whether your spouse works
To claim the correct number of allowances, you should complete Form W-4’s worksheets. These include a personal allowances worksheet, a deductions and adjustments worksheet, and a two-earner/two-job worksheet. IRS Publication 505 (Tax Withholding and Estimated Tax) explains these worksheets.
Check your withholding
To avoid surprises at tax time, it’s a good idea to periodically check your withholding. If you accurately complete all Form W-4 worksheets and don’t have significant non-wage income (e.g., interest and dividends), it’s likely that your employer will withhold an amount close to the tax you’ll owe on your return. But in the following cases, accurate completion of the Form W-4 worksheets alone won’t guarantee that you’ll have the correct amount of tax withheld:
1) When you’re married and both spouses work,
2) If either of you start or stop working
3) When you or your spouse are working more than one job
4) When you have significant non-wage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income, or the amount of your non-wage income changes
5) When you’ll owe other taxes on your return, such as self-employment tax or household employment tax
6) When you have a lifestyle change (e.g., marriage, divorce, birth or adoption of a child, new home, retirement) that affects the tax deductions or credits you may claim
7) When there are tax law changes that affect the amount of tax you’ll owe
In these cases, IRS Publication 919 (How Do I Adjust My Tax Withholding?) can help you compare the total tax that you’ll withhold for the year with the tax that you expect to owe on your return. It can also help you determine any additional amount you may need to withhold from each paycheck to avoid owing taxes when you file your return. Alternatively, it may help you identify if you’re having too much tax withheld. If you find that you need to make changes to your withholding, you can do so at any time simply by submitting a new Form W-4 to your employer.
The joy of budgets
Most people avoid creating a budget and fewer still stick to one. in these times you need one, but it doesn’t have to be painful.
If you’re the type of person who always has plenty of cash, knows exactly where every penny goes, and never has trouble paying bills, you need read no further. You’re either too rich or too smart to need this information.
For the rest of us,
Unfortunately, making – and sticking to – a budget is the essential tool for ensuring that our money gets used the way we need it to. Even if you’re in the happy situation of having plenty of income, the homework involved in drawing up a budget can be instructive, since you may find that you are spending more than you wish on items like DVD’s, electronic gadgetry, or restaurant meals.
Drawing up a budget is usually pure labor enlivened only by the reality of staring foolish spending habits in the face. Why do you have a luxury sound system if neither you nor your spouse listen to it? In fact, one of the chief impediments to budgeting is that most people would rather not know how they really use their money.
It’s bad enough to learn this kind of information on your own. It’s even worse when a spouse or significant other finds out, since it usually confirms his or her worst fears – and provides new ammunition for future arguments “discussions.”
Take heart. Any spending mistakes you’re making are probably common and not impossible to cure. Moreover, the bulk of budgeting’s pains are at the beginning.
After you have a budget in place – and you’ve fine-tuned it with a couple of months of actual spending – tracking, your expenditures becomes almost automatic.
Listing expenses
To build a realistic budget, start by figuring out where your money goes now. There are three steps to creating a budget:
-
Identify how your money is currently being spent.
-
Evaluate that spending to see if it meets your financial priorities.
-
Track your ongoing spending to make sure it stays within those guidelines (or to understand how your budget needs to be revised).
If you happen to use Quicken (recomended), Microsoft Money, Mint.com or other such software, you’re in luck. These programs generally make it easy to draw up a budget.
In Quicken, for example, every time you make a deposit, write a check, pay a credit card bill, or dispatch an electronic payment you are asked to assign it to a particular category, such as “salary,” “clothing,” “groceries,” “child care,” or “health insurance.”
You can also create subcategories, dividing “auto” expenses into “fuel,” “insurance,” and “service.” The program comes with a set of categories that handle most of the basics. You can edit the list to create categories that make better sense for your particular household. And if you’re away from home, you can track expenses at the Quicken Web site and then download the transactions later.
The drawback, of course, is that entering and categorizing all of your income and outflow is a tedious chore.
You can reduce the tedium by judiciously selecting categories. Let’s say you are only worried about tracking your spending for recreation and leisure pursuits. You could create categories that cover those types of expenses, and let everything else accumulate under “miscellaneous revenue” or “miscellaneous expense.”
The problem with that approach is that you forgo the opportunity to spot problems in other spending areas that you may not even be aware of.
A better solution is to track expenses using electronic banking. That way, you can download your payments and deposits directly from the bank, rather than having to enter them by hand.
The downloaded banking transactions generally show up without any categorization – meaning you’ll have to add the categories by hand. But if you use a credit card that is issued by a bank that permits electronic access, then the downloaded charges from your card sometimes do come with categories attached (they aren’t always right, so check them).
Either way, once you’ve got your spending tracked by category, drawing up a report requires only a few clicks of the mouse. Even better, such programs often have an automatic budget-creation feature that scans your spending in the past in order to estimate how much you’ll spend going forward.
If your finances aren’t wired, you can still get a good handle on your spending the old-fashioned way. Start by getting all your records together from the past 12 months, including pay stubs, loan proceeds, withdrawal slips, canceled checks, and itemized credit-card statements. Then go through them and compile totals for your income and expenses in a set of categories that makes sense for you.
At the end of this, you may still have a sizable lump of spending that’s undocumented – typically, the money you withdraw in cash and then spend on day-to-day “needs“. If this portion of your budget seems to be getting out of hand, keep a journal for the next four weeks in which you record every nickel you spend. You can use those results to calculate how your cash is being spent throughout the year.
Now that you’ve got a good picture of where your money is going, you can proceed to evaluate which parts of that spending should be raised or lowered. You might start with a Budget calculator, which compares your spending with recommended levels. Found in most software as above or found on the web. I like looking for free such stuff at ww.tucows.com.
If your boss at work were to ask you for an analysis of the department’s spending, you’d figure it out quickly enough. Budgeting your household should be approached in the same businesslike fashion. A variety of electronic tools can make the process easier.
Setting goals
Analyze your spending habits to see where you need to make changes. Once you have a budget, it’s time to go through your spending and figure out where you need to cut back.
This is especially urgent, obviously, if you spend more than you make – a scary position, for sure, but not uncommon. In fact, Labor Department numbers show that many families making $50,000 or less are spending at least a few percentage points more money each year than they actually bring in.
That doesn’t mean that they, or you, are headed for bankruptcy. But it does show that Americans are in the habit of borrowing to cover both short-term expenses, like those on credit cards, and long-term ones, such as buying cars and homes.
Let’s just say that if your spending exceeds your income, then your top priority in constructing a budget should be to slash your spending, now.
If your household runs in the black, you may still want to reallocate some of your spending. The calculator helps identify trouble spots by highlighting categories where your annual expenses are sharply higher or lower than average for households with similar demographics.
In some cases, a divergence will be perfectly reasonable. The average family spends only a few percent of its income on education, for example. But if you have a child in college or private school, or are taking some courses yourself, your education spending will be a lot higher — and more power to you. I am big on continuing education.
On the other hand, if the calculator shows that you’re spending twice as much as the average family on meals away from home, and there’s no obvious reason why that should be so, you may want to consider eating in more often.
When projecting your income, don’t include money that you can’t be sure to receive, such as highly variable year-end bonuses, tax refunds, or gains on investments. Instead, wait until the extra cash arrives, then save or invest it to produce more revenue for the future. Your goal should be to reduce your spending to about 90 percent of your income, with the aim of plowing the rest of that money into the financial objectives you deem most important.
Once you’ve set your budget goals, you need to develop the habit of tracking your expenses on an ongoing basis – something that’s most easily accomplished using personal-finance software. The aim here is to make sure the spending stays within the limits you’ve set. However there’s a second aim:
Very likely you will discover that some of the goals you set were unrealistic. If so, ease them, slightly. No point in giving yourself an unreachable hurdle, but neither should it be too easy.
Often it takes two or three revisions before you achieve a budget that you can really stick to. If juggling the numbers leaves you wishing you could free up some extra cash, push on for suggestions.
Cutting costs How to reduce spending to free up money for use elsewhere:
The most common spending problems are caused by a house that’s too large, a car that’s too luxurious, or a credit-card lifestyle that’s too lavish for your income. Those who see a virtue in moderation may have had budgeting in mind.
Whatever your situation, here are some common ways that people can reduce monthly bills.
Eliminate trivial / needless costs
Look first for small savings – not because they’ll end your budget problems, but simply because they’re easy to find and take advantage of. For example, swear off that mid-afternoon doughnut or expensive premium latte. Shop for clothes and household furnishings only during sales. Higher gasoline prices make it a good idea to “bundle” one’s various shopping trips. Keep your house warmer in summer and cooler in winter. Take on chores that you usually pay someone else to perform, such as mowing the lawn or shoveling snow.
Seemingly insignificant savings do, in fact, add up.
Reduce larger expenses
These recommendations are decidedly more painful. If you smoke, for instance, take steps to quit. Don’t buy season tickets to anything. Trade in your luxury car or sport utility vehicle for something a lot cheaper to buy, fuel, and maintain (I did say this was painful).
On the assumption that those kinds of changes may be too wrenching, here are some other specific areas where many people can find savings:
Refinance your mortgage
If new mortgages are costing at least two percentage points less than the rate you’re paying, refinancing may save you significant dollars.
Cut your taxes
Usually this means taking better advantage of itemized deductions, and it’s a lot easier to do if you are either self-employed or have some income from work you do outside of a regular job. That opens up a range of new deductions — from expenses for work-related items to a home office — that are much harder to claim if you’re an ordinary working stiff.
On the investment side, you can save some money by selling, and then writing off, investments that have lost money. You can use such losses to offset any gains you may have in a given year. If your losses outweigh your gains, you can deduct as much as $3,000 of investment losses from your ordinary income each year. Those with higher incomes may also be able to save some money by shifting money out of taxable bonds into tax-free municipal bonds. Check with your tax adviser for exact numbers in your situation.
Appeal your home assessment
If you’re a homeowner, you may even be able to cut your real estate taxes by challenging the value that the local assessor puts on your property. You have to have good evidence, of course. You should call the assessor’s office first to make sure you understand the formula for determining the house’s value (the assessment listed on tax bills is often only a fraction of the real value that determines your tax).
If recent home sales in your neighborhood lead you to believe that your house is worth less than its assessment and a qualified real estate agent writes an appraisal in support of your claim, then you can file a grievance with the assessor’s office and possibly get your bill reduced. The cost: $200 to $300 for the written appraisal. If an attorney handles the appeal for you, he or she will typically charge 50 percent of the first year’s tax savings.
Last words of caution
The above suggestions won’t work for everyone, and you may have considered them already. But since you alone are privy to the numbers in your budget, you alone know how radically you need to cut. If these suggestions don’t appeal, find your own alternatives.
Over time, your income should rise as your career progresses and you manage to save money for investing. Also over time, inflation will raise the cost of living. A mere 3 percent annual rise in prices will double the cost of everything within 24 years. At that time, you’ll need twice as much money as you do today to live as well as you do now. So don’t start spending your rising income on luxuries you’ve been denying yourself until you’re sure that you’re staying ahead of inflation.
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L & R Tax Preparation
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