Until April 18…
Yes that’s right, the 18th of April is this year’s tax deadline, a dreaded day for some. Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns. This year the IRS expects to receive more than 140 million individual tax returns, with most of those being filed by the April 18 deadline.
Need an Extension?
If you can't meet the April deadline to file your tax return, you can get an automatic six month extension of time to file from the IRS.
Here are seven things you need to know about filing an extension (directly from IRS Tax Tips):
1. Extra time to file. 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 the deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date.
2. File on time even if you can’t pay. 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 click “Online Payment Agreement Application” at the left side of the home page under Online Services. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options.
3. Form to file. Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return to the IRS, or make an extension-related electronic credit card payment.
4. E-file extension. You can e-file an extension request using tax preparation software with your own computer or by going to a tax preparer who has the software. The IRS will acknowledge receipt of the extension request if you file by computer.
5. Traditional Free File and Free File Fillable Forms. You can use both Free File options to file an extension.
6. Electronic funds withdrawal. 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.
7. How to get forms. Form 4868 is available for download at IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676).
Check for a Refund
Once taxpayers file their federal return, they can track the status of their refunds by using the “Where's My Refund?” tool, located on the front page of www.IRS.gov. Taxpayers can generally get information about their refunds 72 hours after the IRS acknowledges receipt of their e-filed returns, or three to four weeks after mailing a paper return.
Taxpayers need to provide the following information from their tax returns: (1) Social Security Number or Individual Taxpayer Identification Number, (2) filing status, and (3) the exact whole dollar amount of your anticipated refund. If the U.S. Postal Service returns the taxpayer’s refund to the IRS, the individual may be able to use “Where’s My Refund?” to change the address the IRS has on file, online.
It’s been a hectic tax season and we are three weeks away to our major deadline of the year. If you work with a CPA, make it a priority to provide them with your documentation as soon as possible.
Look for our next blog after the tax season deadline passes.
Happy Tax Season to all!!!
brad@mcarthurco.com
704.544.8429
Monday, March 28, 2011
Monday, March 14, 2011
Be Educated on Education Tax Incentives
• American opportunity tax credit
For tax years beginning in 2010, individuals may claim an American opportunity tax credit under equal to 100% of up to $2,000 of qualified higher-education tuition and related expenses (including course materials), plus 25% of the next $2,000 of expenses paid for education furnished to an eligible student in an academic period—i.e., a maximum credit of $2,500 a year for each eligible student. For 2010, the availability of the credit phases out ratably for taxpayers with modified AGI of $80,000 to $90,000 ($160,000 to $180,000 for joint filers). The Credit is allowed for each of the first four years of the student's post-secondary education in a degree or certificate program.
• Exclusion for scholarships
For 2010, a qualified individual can exclude from income a qualified scholarship or qualified tuition reductions. These exclusions generally do not apply to any amounts received by a student that are payment for teaching, research, or other services as a condition for receiving the scholarship or tuition reduction.
• Employer-provided educational assistance
For 2010, an employee may exclude educational assistance provided under an employer's qualified educational assistance program, up to an annual maximum of $5,250 under.
• Above-the-line student loan interest deduction
Individuals can deduct a maximum of $2,500 annually for interest paid on qualified higher education loans. For 2010, the deduction phases out ratably for taxpayers with modified AGI between $60,000 and $75,000 ($120,000 and $150,000 for joint returns).
• Coverdell education savings accounts
Taxpayers can contribute up to $2,000 per year to Coverdell Education Savings Accounts for beneficiaries under age 18 (and, special needs beneficiaries of any age). The account is exempt from income tax, and distributions of earnings from CESAs are tax-free if used for qualified education expenses. The contribution limit is phased out for contributors with modified AGI between $95,000 and $110,000 ($190,000 and $220,000 for joint returns).
brad@mcarthurco.com
704.544.8429
For tax years beginning in 2010, individuals may claim an American opportunity tax credit under equal to 100% of up to $2,000 of qualified higher-education tuition and related expenses (including course materials), plus 25% of the next $2,000 of expenses paid for education furnished to an eligible student in an academic period—i.e., a maximum credit of $2,500 a year for each eligible student. For 2010, the availability of the credit phases out ratably for taxpayers with modified AGI of $80,000 to $90,000 ($160,000 to $180,000 for joint filers). The Credit is allowed for each of the first four years of the student's post-secondary education in a degree or certificate program.
• Exclusion for scholarships
For 2010, a qualified individual can exclude from income a qualified scholarship or qualified tuition reductions. These exclusions generally do not apply to any amounts received by a student that are payment for teaching, research, or other services as a condition for receiving the scholarship or tuition reduction.
• Employer-provided educational assistance
For 2010, an employee may exclude educational assistance provided under an employer's qualified educational assistance program, up to an annual maximum of $5,250 under.
• Above-the-line student loan interest deduction
Individuals can deduct a maximum of $2,500 annually for interest paid on qualified higher education loans. For 2010, the deduction phases out ratably for taxpayers with modified AGI between $60,000 and $75,000 ($120,000 and $150,000 for joint returns).
• Coverdell education savings accounts
Taxpayers can contribute up to $2,000 per year to Coverdell Education Savings Accounts for beneficiaries under age 18 (and, special needs beneficiaries of any age). The account is exempt from income tax, and distributions of earnings from CESAs are tax-free if used for qualified education expenses. The contribution limit is phased out for contributors with modified AGI between $95,000 and $110,000 ($190,000 and $220,000 for joint returns).
brad@mcarthurco.com
704.544.8429
Tuesday, March 1, 2011
Your Record Keeping Matters
Deductions for business Meal and Entertainment expenses, business use of cars, and business gifts must be backed up by adequate records or sufficient evidence that corroborate the taxpayer's own statement and show:
• the amount of the expense;
• the time and place of the travel or entertainment, or use of the facility or property (for example, the use of a business car); or
• the date and description of the business gift; the business purpose of the expense or other item; and
• in the case of business entertainment or gifts, the business relationship of the person being entertained or receiving the gift
The taxpayer also must be able to prove the amount of any $75-or-over business-entertainment expense. A restaurant receipt is enough to prove a business-meal expense, if it carries the name and address of the restaurant, number of people served, date, and amount of the expense.
Form of the Expense record. Records should be kept in a diary, log, or other systematic format. A partial record can be combined with documentary evidence (for example, receipts) to establish all the necessary elements—time, place, amount, and business purpose. The record need not be made “contemporaneously.” However, the IRS regs say that a record made “at or near” the time of the expenditure is the strongest form of evidence. Generally, records must be in writing. However, business usage (but not out of pocket expenses) of listed property (such as cars) may be tracked on a computer.
The IRS regs allow substantiation by means of a corroborated statement of the taxpayer only if: (1) the statement, whether written or oral, contains specific information in detail as to the element to be proved, and (2) the taxpayer presents other corroborative evidence sufficient to establish that element.
The corroborative evidence must be either direct evidence, such as a written statement or the oral testimony of persons with knowledge of the element to be proved, or documentary evidence, such as receipts, paid bills, etc. If the element is business relationship or business purpose, the supporting proof can be circumstantial evidence.
Lost records. If a taxpayer's records of business expenses are destroyed because of circumstances beyond the taxpayer's control (for example, flood, fire, earthquake, or other casualty), he can claim the deductions based on a “reasonable reconstruction” of the records.
Who must retain records and receipts? Self-employed taxpayers, as well as employees who aren't reimbursed, or are treated as unreimbursed under a nonaccountable plan, keep their own records and will need them to defend deductions in the event of audit. By contrast, if an employee is reimbursed under an accountable plan, and makes an adequate accounting to the employer, the substantiation burden generally shifts to the employer once the necessary records and receipts are turned in to the company. However, employees reimbursed under an accountable plan must keep a copy of their business expense records and receipts if:
• actual T&E expenses exceed the reimbursement, and the employee deducts the excess (as a miscellaneous itemized deduction subject to the 2%-of-AGI floor);
• the employee is related to the employer within the meaning of Code Sec. 267(b) , using a 10% test; or
• the company's substantiation procedures are inadequate (e. g., executives account to themselves and to no one else).
It’s March 1, so the Business filing deadline is quickly approaching. Don’t procrastinate taxpayers! Get your information over to your CPA as soon as possible. As the heat of the summer and tax season approaches, remember that your CPA is only as good as you let them be. The better and more accurate your records, the better your CPA can perform in helping you with tax and business planning.
brad@mcarthurco.com
704.544.8429
• the amount of the expense;
• the time and place of the travel or entertainment, or use of the facility or property (for example, the use of a business car); or
• the date and description of the business gift; the business purpose of the expense or other item; and
• in the case of business entertainment or gifts, the business relationship of the person being entertained or receiving the gift
The taxpayer also must be able to prove the amount of any $75-or-over business-entertainment expense. A restaurant receipt is enough to prove a business-meal expense, if it carries the name and address of the restaurant, number of people served, date, and amount of the expense.
Form of the Expense record. Records should be kept in a diary, log, or other systematic format. A partial record can be combined with documentary evidence (for example, receipts) to establish all the necessary elements—time, place, amount, and business purpose. The record need not be made “contemporaneously.” However, the IRS regs say that a record made “at or near” the time of the expenditure is the strongest form of evidence. Generally, records must be in writing. However, business usage (but not out of pocket expenses) of listed property (such as cars) may be tracked on a computer.
The IRS regs allow substantiation by means of a corroborated statement of the taxpayer only if: (1) the statement, whether written or oral, contains specific information in detail as to the element to be proved, and (2) the taxpayer presents other corroborative evidence sufficient to establish that element.
The corroborative evidence must be either direct evidence, such as a written statement or the oral testimony of persons with knowledge of the element to be proved, or documentary evidence, such as receipts, paid bills, etc. If the element is business relationship or business purpose, the supporting proof can be circumstantial evidence.
Lost records. If a taxpayer's records of business expenses are destroyed because of circumstances beyond the taxpayer's control (for example, flood, fire, earthquake, or other casualty), he can claim the deductions based on a “reasonable reconstruction” of the records.
Who must retain records and receipts? Self-employed taxpayers, as well as employees who aren't reimbursed, or are treated as unreimbursed under a nonaccountable plan, keep their own records and will need them to defend deductions in the event of audit. By contrast, if an employee is reimbursed under an accountable plan, and makes an adequate accounting to the employer, the substantiation burden generally shifts to the employer once the necessary records and receipts are turned in to the company. However, employees reimbursed under an accountable plan must keep a copy of their business expense records and receipts if:
• actual T&E expenses exceed the reimbursement, and the employee deducts the excess (as a miscellaneous itemized deduction subject to the 2%-of-AGI floor);
• the employee is related to the employer within the meaning of Code Sec. 267(b) , using a 10% test; or
• the company's substantiation procedures are inadequate (e. g., executives account to themselves and to no one else).
It’s March 1, so the Business filing deadline is quickly approaching. Don’t procrastinate taxpayers! Get your information over to your CPA as soon as possible. As the heat of the summer and tax season approaches, remember that your CPA is only as good as you let them be. The better and more accurate your records, the better your CPA can perform in helping you with tax and business planning.
brad@mcarthurco.com
704.544.8429
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