Tag Archives: IRS

The Difference Between Stocks And Crypto, And How Crypto Affects Taxes; The Short Version

When it comes to the topic of crypto or cryptocurrency, we’re never going to claim that we’re experts. When it comes to taxes we know a lot more on how to handle them. Still, we’d feel remiss if we didn’t talk a little bit about what crypto is and how it compares to stocks, which most people have heard about but might not understand either.

not a bitcoin!

Let’s talk about stocks, the stock market and investing. A quick explanation about stocks is that they’re investments in a company or corporation. You can buy them through a stockbroker or some kind of digital application run by either individuals or companies.
Continue reading The Difference Between Stocks And Crypto, And How Crypto Affects Taxes; The Short Version

Paying Estimated Tax When Your Income Is Low

Many small businesses ponder the question of whether they should, or are supposed to, pay estimated tax quarterly when their income is low. It’s an interesting question, so let’s take a look at it.

When you look at the tax code, there’s a line that states: “Those who have income from their own business will need to make estimated tax payments if their tax liability is expected to be more than $1,000 for the year.”

This highlighted part begins the whole show, along with this one: “If you owed taxes at the end of last year, it probably means that too little was withheld from your paychecks, or you had other income that increased your tax liability”.

Let’s take the first one. The reason tax liability is highlighted is because it indicates what you might have to pay, not how much you’ve earned. This is an interesting distinction because, although you have to file taxes if you make more than $400 in a calendar year, the odds are that if you didn’t make a lot of money for the year that your tax liability won’t come close to owing $1,000.

Many small businesses have seasons where they might make a lot more money as opposed to making it all year round. If that’s the case, then making estimated payments when that time period comes up can make a lot of sense. However, paying every single quarter might not be feasible for you if you have to stretch your money out, so it can be a tough decision.

The best thing in this case is to at least pay something, even if it’s only $50, because you not only have to deal with the federal government but in some states they’re going to want a piece of you as well.

A caveat to this is if your spouse is earning a full time income and has taxes being taken out by their employer. In this case, if you’re filing jointly, you can probably get away with not paying anything because the bulk of the tax liability will be coming from them. It doesn’t hurt to hedge your bet though; you could end up getting your entire payment back.

Now let’s look at the second one. This one is a bit different because when you owe money and they don’t see estimated payments, and you don’t have a spouses income to offset your own, the IRS starts expecting you to pay quarterly, especially if you go on a payment plan.

If you can pay your balance within 3 months or so they’ll usually leave you alone; the IRS isn’t as scary as they’ve been made out to be. If you can’t, then you might have to deal with them at some time. Just remember that you can make small quarterly payments; at long as they get something they’ll leave you alone.

Our advice would be to try to make some kind of quarterly tax payments just to be safe. Obviously if you make a lot of money it’s the smart thing to do. If you don’t, and you can’t, don’t immediately worry about it because you’ll always have both time and payment options to catch up when you can.

Anxiety At Tax Time

I don’t know many people who don’t get some kind of anxiety at tax time. Whether you think you have money coming back to you or whether you think (or know), you’re going to owe money, it’s a tough time of the year when you know it’s filing time.

Did you know it’s estimated that around 8 million people a year don’t file their taxes, either on time or at all? That’s a fantastic figure, and it’s estimated to cost the government $83 billion a year. Think about it; this includes people who are getting money back.

Why don’t people do their taxes? The figure isn’t all that high for those who don’t believe in the tax system, the ones who believe the government doesn’t have the right to tax them.

The top two things are people just forget about it and people are scared because they feel they’re going to owe and won’t have the money to pay for it. Since both of these are common but only one of them is something we can help you with, we’re going to talk about the second issue.

Here’s a dose of reality for you; it’s always better to know. Even if you think you owe, you need to know what it is because that’s the only way you can possibly do something about it. As we wrote 2 years ago, the IRS will work with you to help you pay back your taxes. Depending on how much you owe, you could end up paying them as little as $25 a month if that’s all you can afford. It always depends on your circumstances, but they’re willing to work with you.

Going to an accountant for tax help might be better than going to a tax service. One of our client’s wives was told that she owed almost $4,500 in taxes because she’d worked a part time job that didn’t take much in taxes out. By coming to us, we were able to combine her and her husband’s taxes (they’d filed separately because he worked independently) they were able to bring the combined liability down to under $500.

It’s not that accountants are doing sneaky things to keep their clients from paying their taxes. It’s that they know some things even tax preparers might not know. Often tax preparers are temporary workers who go through a class, pass a test and man a table during tax season. It’s hard to compare that to someone who’s literally doing tax work all year long.

Don’t sit home scared of finding out if you’re going to owe something to the IRS or not. Go see a professional and take a major step forward in controlling your life.

The Thing About Estimated Tax Payments Is…

Anyone who has their own business or works independently knows that there’s this thing known as estimated tax payments. They know that they have to make these payments by certain dates 4 times a year.

What no one really knows is why.

If you take a good look at the IRS page on estimated tax payments, you’ll see that they tell you to make these payments by the assigned dates (without telling you what those dates are on that page), and that, if you either don’t make payments by those dates, or don’t pay enough on those dates, that you could incur a penalty.

Does that sound ominous or scary? I wouldn’t ever go that far but it does sound like government lawyer speak, which in essence is nonsense.

In essence, there are a couple of reasons why the federal government wants you to make estimated tax payments.

The first is because if you were working for a large corporation someone else would be taking money out from you and making those payments. So, because you’re self employed and there’s no one else doing it for you, they want you to do it; kind of a self reporting.

The second is more selfish. They want your money so they can earn interest off it instead of letting you do it, if you were predisposed to do so. This makes more sense because our government always seems to be in a deficit, so it needs to find other ways to generate income. Also, they know that not many employees know that they can actually add more than just the number of dependents in their family and, in essence, pretty much hold onto all of their money until tax time. This means individuals and families can do what the government does; it’s just riskier doing things that way.

The truth is that it makes sense to make some kind of payments, but how much? This one I can’t answer for you because it depends on a number of factors. One is your income. Another is your expenses. The last is how your income is generated.

Income itself is easy enough. You might know that you’re going to make a specific amount based on the previous year, thus it’s easy to estimate how much you might want to pay each quarter.

Expenses is a wild card because often smaller business generate income but because of expenses run their business officially at a loss. In these instances the business might not have to make any tax payments at all or minimal, and you end up getting money back or having your accountant tell you that you’re good. However, it’s dicey because even in a normal year you might have to buy some expensive equipment that helps your bottom line, or maybe you have lots of travel expenses this year as opposed to the previous year, even though your income is the same.

How your income is generated is another tough one to deal with. If your income is project based, it’s possible that maybe you get two large contracts a year that last only a couple of months each time. This means you might want to make two large payments a year instead of something every quarter, or maybe you figure out what your normal yearly income is and spread out the payments. But what if you get one less contract or fit one more in? The fewer contracts might mean you paid too much, the more contracts might mean you didn’t pay enough, in which case the IRS tells you to figure out your income again and make adjustments.

What are the penalties? Who knows? Truthfully, unless you’re making six figures on a consistent basis there probably won’t be any penalties at all. Also, if your business often runs at a loss you probably won’t have anything to worry about either. In either case, it pays to have an accountant looking at your income on a regular basis and following their advice. They’re not going to steer you wrong because it would make them look bad, and their advice could keep you penalty free or even put money back in your pocket.

Those aren’t bad choices.

Working With The IRS On Tax Liabilities

Do you owe the IRS tax money? Is it kind of high? Are you scared and worried because you’re unsure how you’re going to pay them because you already have so many other bills?

You’re not alone, but here’s a reality. Most of us think of the IRS as this almighty bully looking to take us down. Like most governmental agencies though, they’re not really like that. As a matter of fact, the majority of people you talk to at the IRS are willing to work with you, no matter what your situation is, to help you pay your bills. That is, if you’ve at least filed your tax return, whether you actually paid them or not.

Of course your first step is to make sure everything’s correct. You should either run your taxes through an accountant, a tax service, or a tax attorney. On that last one, only go to an attorney if you think you’re going to owe $10,000 or more; otherwise it’s not really worth it.

You’ve probably received a letter in the mail from the IRS, registered or not, to get the process started. Your first step is to pick up the phone and call them. Have your courage ready; not that you necessarily need it but what happens sometimes is you could be on hold for longer than 30 minutes. Many people will find a way to talk themselves out of staying on the line and waiting for someone; that’s fear talking and you have to shut it out. If you call again, the process starts all over.

Once you get someone on the phone you’ll have to confirm the amount you owe. If you believe your balance should be different they will put a hold on your account of 14 to 30 days and do a full review. If you have any extra information for them they’ll ask you to send it to them.

If you know you actually owe the amount requested they’ll ask you if you want to set up a payment arrangement with them. If you have circumstances that make it hard for you to make big payments they’ll work with you on smaller payments.

The caveat here is twofold.

One, they’ll tell you that you have to make sure you pay all the taxes for the previous year so that you don’t have the same thing happen the next year. You might find that hard to do but try to keep up. They will work with you again, but they won’t tell you that initially. As long as your overall outstanding balance stays below $25,000, you’ll probably be okay as long as you prove you’re trying.

Two, you’ll continue building up interests and penalties. Both are actually much lower than any credit cards you’d ever have, but it’ll make them set up a payment so that you’re actually paying down the balance instead of allowing it to increase. Still, don’t make an agreement for an amount that you know you can’t pay; that’ll look bad on your record if you miss a later payment.

As with most things, the fear goes away when you make that first call. People do have jobs to do but most of them understand that people have financial struggles. It’s always better to face these types of things upfront.