Accounting and Tax Tips and Information

written by Lauren Bakken, owner of Bakken CPA PC and co-author of the book, One-Income Household

Bakken CPA PC is dedicated to providing timely, professional, personalized service to businesses and individuals.

Category Archives: Financial Planning

Tips for Taxpayers Who Missed the Tax Deadline

If you didn’t have time to get your 2012 tax return prepared on time, here’s some advice for taxpayers who missed the tax filing deadline.

  • File as soon as possible.  If you owe federal or state income tax, you should file and pay as soon as you can to minimize any penalty and interest charges. There is no penalty for filing a late return if you are due a refund.
  • Penalties and interest may be due.  If you missed the April 15 deadline, you may have to pay penalties and interest. The IRS may charge penalties for late filing and for late payment. The law generally does not allow a waiver of interest charges. However, the IRS will consider a reduction of these penalties if you can show a reasonable cause for being late.
  • E-file is your best option.  IRS e-file programs are available through Oct. 15. E-file is the easiest, safest and most accurate way to file. With e-file, you will receive confirmation that the IRS has received your tax return. If you e-file and are due a refund, the IRS will normally issue it within 21 days.
  • Pay as much as you can.  If you owe tax but can’t pay it all at once, you should pay as much as you can when you file your tax return. Pay the remaining balance due as soon as possible to minimize penalties and interest charges.
  • Installment Agreements are available.  If you need more time to pay your federal or state income taxes, you can request a payment agreement.
  • Refunds may be waiting.  If you’re due a refund, you should file as soon as possible to get it. Even if you are not required to file, you may be entitled to a refund. This could apply if you had taxes withheld from your wages, or you qualify for certain tax credits. If you don’t file your return within three years, you could forfeit your right to the refund.

If you are required to file, you should always do so as soon as possible. If you need your tax return prepared, contact your tax professional today.

Seven Tips on Making Estimated Tax Payments

Some taxpayers may need to make estimated tax payments during the year. The type of income you receive determines whether you must pay estimated taxes.

Here are 7 tips about making estimated tax payments:

  1. If you do not have taxes withheld from your income, you may need to make estimated tax payments. This may apply if you have income such as self-employment, interest, dividends or capital gains. It could also apply if you do not have enough taxes withheld from your wages.
  2. If you are required to pay estimated taxes during the year, you should make these payments to avoid a possible penalty.
  3. Generally, you may need to pay estimated taxes in 2013 if you expect to owe $1,000 or more in taxes when you file your federal tax return. Other rules apply, and special rules apply to farmers and fishermen.
  4. When figuring the amount of your estimated taxes, you should estimate the amount of income you expect to receive for the year. You should also include any tax deductions and credits that you will be eligible to claim. Be aware that life changes, such as a change in marital status or a child born during the year can affect your taxes.
  5. You normally make estimated tax payments four times a year. The dates that apply to most people are April 15, June 17 and Sept. 16 in 2013, and Jan. 15, 2014.
  6. You should use Form 1040-ES, Estimated Tax for Individuals, to figure your estimated tax.
  7. You may pay online, by phone or by mail. Check on the Electronic Payment Options Home Page at www.IRS.gov for more details. If you mail your payments to the IRS, you should use the payment vouchers that come with Form 1040-ES.

For more information about estimated taxes, contact your tax preparer today.

Should You Take the Standard or Itemized Deductions?

What’s the Difference?

When clients come to our office to file their tax return, we often get asked whether it is more beneficial for them to itemize deductions or take the standard deduction. You should compare both methods and use the one that gives you the greater tax benefit.

Here are six facts to help you choose:

1. Calculate your itemized deductions by adding up the cost of items you paid for during the year that you might be able to deduct. Expenses include:

  • Home mortgage interest
  • State income taxes or sales taxes (but not both)
  • Real estate and personal property taxes
  • Gifts to charities
  • If your expenses are over the minimum threshold, you can also include:
    • Medical and dental expenses that insurance did not cover
    • Unreimbursed employee business expenses
    • Cost of preparing your tax return

2. Know your standard deduction.  If you do not itemize, your standard deduction amount depends on your filing status. For 2012, the basic amounts are:

  • Single = $5,950
  • Married Filing Jointly  = $11,900
  • Head of Household = $8,700
  • Married Filing Separately = $5,950
  • Qualifying Widow(er) = $11,900

3. Apply other rules in some cases. Your standard deduction is higher if you are 65 or older or blind. Other rules apply if someone else can claim you as a dependent on his or her tax return.

4. Check for the exceptions.  Some people do not qualify for the standard deduction and should itemize. This includes married people who file a separate return and their spouse itemizes deductions.

5. Choose the best method.  Compare your itemized and standard deduction amounts. You should file using the method with the larger amount.

6. File the right forms.  To itemize your deductions, use Form 1040, and Schedule A, Itemized Deductions. You can take the standard deduction on Form 1040.

For more information about allowable deductions, contact your tax preparer today.

Are Your Children Being Educated About Money?

Three out of ten parents don’t talk to their children about money or have had just one major talk with their children on the subject, according to a U.S. survey conducted for the AICPA. Children tend to be over the age of ten by the time their parents first talk to them about money.

Above talking to children about finances, parents are more likely to talk to them about other important topics, such as:

  • The importance of good manners
  • The benefits of good eating habits
  • The importance of getting good grades
  • The dangers of drugs and alcohol
  • The risks of smoking

It is important to teach children the right lessons about financial responsibility and help them to be prepared for a sound financial future.

Some tips for how to get these ideas across to your children:

  • Start Early. Your children learn at a young age to want items, such as toys, clothes, or games, at this time, you should start teaching them about saving. Have them practice saving by putting away some of their birthday or allowance money to purchase the item they want, give them a goal to meet and once it has been met, let them buy the item. This will teach them the basics of delayed gratification and budgeting for a goal.
  • Speak in Their Terms. Your child may have no interest in learning about the compounding interest on their college savings account; they are more likely to care about money to spend with friends or to buy a toy. Take this opportunity to teach about savings by relating it to something they will care enough about now to listen.
  • Repeat Often. The more often you talk to your children about good financial decisions, the more likely it is to stick with them in their future. At meal times, talk about saving for big purchases, like vacations, and how it might affect budgets.
  • Walk the Talk. As they say, actions speak louder than words. By giving in easily to your children if they make a fuss over a toy at store, then you will have a hard time convincing them that delayed gratification and sticking to a budget is effective.

Teaching your children now about the benefits of saving and budgeting is just as important as teaching them to be polite. These are basic skills that your children will need to know to be a well-rounded adult. For more information on what other financial knowledge you should be passing on to your children, contact your accountant today.

Does Your Elderly Loved One Need a Daily Money Manager?

Has your parent, friend or other family member gotten to a point where they are no longer able to keep their financial affairs in order? A daily money manager is someone who can take on the task that others can no longer complete.

On an ongoing basis, a daily money manager (DMM) reconciles bank accounts, ensures that bills are paid, keeps track of assets, does investment and insurance reviews, coordinates with other financial professionals, and even sorts through the mail. He or she can also consult with the client to answer financial questions and help him or her complete essential tasks.

Demand for these types of services is growing largely due to the rapid aging of the U.S. population. Consider the following:

  • The number of Americans at least 80 years old increased by more than 20% between 2000 and 2010, according to the 2010 U.S. Census. The number of 90-year-olds soared by 30%.
  • The first set of baby boomers turned 65 in 2011. Between 2000 and 2010, the number of people age 60 to 64 jumped more than 55%, while those age 55 to 59 soared 46% these are the two largest increases among all U.S. age groups. As of the 2010 Census, there were slightly more than 40 million people age 65 and over.

In previous generations, children were around to help their parents with these tasks and would not have needed to hire someone. It is much more common practice now to move away from home during adulthood. Sometimes it is not possible to be around daily to help so; the need for a DMM has emerged.

DMMs not only work with elderly clients, but can also fill the needs of very busy professionals. People that may not have the time or interest in dealing with their own personal finances can hire a DMM in the same manner.

This type of professional can give your loved one the attention he or she needs to be sure their financial matters are being handled. To find out more about a DMM contact your accountant today.