While the filing deadline is April 15th, there is still time if you have waited until the last minute. Feel free to send me an e-mail on the contact page or give me a call to see what we can do for you.
Category Archives: Individual
2013 Tax Reminder!
This is a quick reminder to write down your odometer reading since it is the start of the new year. This way you can calculate your total miles for the year, which is essential if you claim business mileage. Also, this is used to calculate total mileage for 2012 as well.
If you need a mileage log, send me a quick message. I have a large stack here to give out!
Happy driving! (And mileage recording)
Tax Planning 2012 Year End
Today is the winter solstice, also the day a certain calendar ends, and also the end of the world. And yet, somehow taxes will remain. That being said, do you need to do things to reduce your taxes? Every situation is different so let me mention a few things that have to be done before year end, and one that can be done later.
529 Contributions
In Ohio it is possible to deduct contributions to an Ohio 529 plan. But the Ohio tax savings on a $2,000 contribution may not be that great, though. Still, this is a “do before year end” thing. Hey at least you’re trying to save for college.
Selling Stuff At a Loss
This seems like a standby on any tax savings list you read off Yahoo or other web portals. It annoys me, but yes, you can get some savings from selling investments at a loss and yes this is a “do before year end” thing. Yes there is that $3,000 a year limit but if you are offsetting similar gains you can skirt around those rules if everything falls correctly. The better option is to not have any investments at a loss that will never generate a gain for you, but hey, it is not that easy is it?
Increase Itemized Deductions
This would also fall under the “you have to spend it in order to save it” theory. For example, charitable contributions can save a lot of taxes if you do it right, but on the other hand, you have to spend money in order to save money. So it depends on your goals. Remember charitable contributions doesn’t have to be cash. It can also be items such as bags of clothes, a car, stock, car mileage – many different things. There are different rules for all of them relating to record keeping and limits on how much you can deduct. (They are pretty high though). If you hit a limit, though, you can always carry forward to next year.
Sometimes you may be able to pay a half of your real estate taxes in the year prior than you otherwise would. Certain counties will let you do that. If you are on the cusp of itemizing, you can try to move a payment into a current year and use the standard deduction the next year. That way you get more bang for your standard deduction.
Another item is to pay your Ohio, or other state, estimated taxes before year end. You can deduct taxes paid to states and cities, so if you generally owe or pay estimates, you can pay before December 31st and move that deduction into 2012.
Bonus Depreciation
Currently the 50% bonus depreciation for new assets expires and will not continue into 2013. So if you operate at a loss, it may make sense to buy new equipment to get the bonus depreciation in 2012. That is because bonus depreciation works in a loss scenario whereas Section 179 (another way to write of a capital purchase) does not allow a deduction in a loss scenario.
IRA Contribution
This one still remains as a common way to get a tax break without forever parting with your money. The deadline is not December 31st, though; it is the due date for your tax return without extensions. So we can see if it will help you while we calculate the return and you don’t have to guess. Nice isn’t it?
2013 Mileage Rates for Auto Use
The IRS has published the 2013 mileage rates:
56.5 cents per mile for business use, thus perpetuating the IRS belief that somewhere out there is a half cent coin. For a tongue-in-cheek but useful article on business mileage, click here.
14 cents a mile for charitable use, unchanged from last year because everyone knows your car uses less gas when you drive it for charity.
24 cents a mile for medical and moving use. You can find this deduction discussed as part of my commonly overlooked medical deductions article.
The IRS Notice can be found here: 2012-72
Happy driving!
http://www.irs.gov/pub/irs-drop/n-12-72.pdf
Estimated Tax Preparation – 2nd Quarter due June 15
Just a reminder about the 2nd quarter 2012 estimated tax payment for individual federal income tax is due June 15. Ohio uses the same deadline. For Canton, North Canton, Akron, Cleveland, and other cities the due date for the individual second estimate is July 31st. It is July 30th for Massillon.
Federal and Ohio: If you are self-employed, or have any other sources of income where tax is not withheld, it is likely you could fall under the rules requiring estimated tax payments. The idea behind it is that at least 90% of your tax should be paid usually by the due date of the fourth installment. Ohio has similar rules. There is a penalty that could be applied if you do not due this. So far in 2012 that penalty is 3% for the underpayment. Some people feel that is low enough just to pay the penalty and not pay estimates, but you need to be careful. There are safe harbors, exceptions, and different ways to calculate those requirements. Some exceptions to the penalty are:
- Pay at least 90% of the current tax owed via all means (withholding, credits, etc…)
- Pay 100% (or 110% for higher income filers) of the previous year’s tax liability
- Farmers and fisherman can pay in one estimate by January 17th if 2/3rds of their income is from those sources for the current or prior year. If they also file by March 1st, the payment can even be by that date
- Tax due is under $1,000 ($500 for Ohio)
- You can vary your payments as you earn the income without being penalized if you feel like filing a complicated 2210 form with your return
Due dates are:
- April 17, 2012
- June 15, 2012
- September 17, 2012
- January 15, 2013
As of this writing, Ohio says on their website that the third estimate is due September 15th, which is a Saturday, and the fourth estimate is due January 17th, where the 15th would be a Tuesday. Translation: that doesn’t make sense. I’m pretty sure they made a mistake and intended the due dates to be the same as the federal. It can be found here: Ohio Dept. of Taxation’s Individual Estimated Tax Info
Ohio Cities: Canton, Massillon, and Ohio cities in general have different estimated tax rules for individuals. You are supposed to make quarterly payments that are each 1/4 of the amount due the previous year. In fact, they want the first one added to the previous year tax liability on the return. Convenient isn’t it? I can see their logic, but I still see a lot of people leave that off their return anyway and just pay a penalty. The penalty usually runs $25 plus interest for not paying in at least 75% of the tax liability for a year. (90% according to CCA forms) Like the federal requirements there is an exception if you pay 100% of the previous year for many cities. Do cities actually follow through on those penalties? Yes. Not always, but frequent enough that it usually does not surprise me.
Due dates of estimated payments for Ohio cities generally are:
- April 30, 2012
- July 31, 2012
- October 31, 2012
- January 31, 2013
For some reason the due dates for Massillon are all on the 30th and not the 31st. I’ve only known banks to pretend that all months end on the 30th but I suppose cities can get in on the act too.
Links:
Massillon Estimated Payment Vouchers for 2012
Canton Estimated Payment Vouchers for 2012
North Canton Estimated Payment Vouchers for 2012
Akron Estimated Payment Vouchers for 2012
My heartfelt thoughts are with you if you really do have to fill out that CCA form. RITA will generally send you estimated tax bills if you filled out your taxes correctly. They make it look like a scary tax notice but if you look carefully you can see that it is just an estimated payment voucher.
Have a question? Send me a message!
Tax Returns Coming Due April 17th! What To Do? Extension?
With taxes, sometimes it can slip away from us. Sure there are constant reminders on the news, tax tip articles on every web portal, forms pouring in the mail, but sometimes we forget anyway. Perhaps on purpose. Sure. But now that the deadline is looming, what are the options?
Well the tax deadline for 2011 tax returns is April 17th, 2012. Yes that is a Tuesday. Yes, that is different than the 15th. The due date actually varies frequently from the 15th. For example this time the 15th is on a Sunday, so the due date is automatically put off. Problem is April 16th is Emancipation Day in the District of Columbia. So the due date gets pushed off again. I am not complaining about that one.
But even though it is only a District of Columbia holiday, Ohio, Canton, Massillon, CCA (Cleveland), and pretty much most tax districts follow suit. Their deadlines are also the 17th of April.
What if those two extra days still aren’t enough? Well you can file for an extension. Individual extensions can be filed that extend the deadline for six months to October 15th. The form used is 4868. This is an extension to file, not an extension to pay. So if you think you of may owe, you can send in a payment with the extension to lessen or avoid penalties and interest. Other business entities can be extended as well. Don’t forget some Ohio cities do not accept federal extensions so consider sending one to them.
So you can cram it all in this weekend and file on the 17th, or file an extension and maybe pay an estimate with it. I can e-file extensions rather easily and may even be able to help you file on time! Happy filing!
Tax Deductions for Auto Use (aka I Drive My Car For Work And Want Money For It)
You drive to work, drive to lunch, drive to the post office, drive for your charity, drive to the doctor, drive kids to sports, drive to the computer, drive to bed… ok maybe not the last two. But it sure seems like there’s a lot of driving to be done if you don’t live in a big city like Jackson Township and Dover, Ohio.
With all this driving, what can be deducted?
People who work from home have it good. They have to drive exactly zero miles to get to work and it takes ten seconds to get there. However, not everyone has it good. Many, many people have to drive to work, and daily traffic patterns say to as much. i.e. traffic jams. Many people ask me, “Hey, can’t I deduct driving to and from work?” You can deduct a lot of different types of miles in different circumstances.
Mileage While At Work
No matter what job we have, it seems at times we have to make trips in our car for various business reasons. A run to the bank. Meeting with people over lunch. Showing that house. That mileage will count as business mileage because if you work more than two places in a day, you can count the expense from getting from one to the other.
Commuting
In general, a taxpayer’s daily transportation expenses incurred in going between the taxpayer’s home and a regular work location have long been considered nondeductible personal expenses. Also known as sitting in traffic during blizzards, construction, and rubber necking motorists. An important factor is where your work location is. That is because there are a few exceptions. Among them are:
Temporary Work Location – If you have at least one regular place of work, then transportation to a temporary work location may work if it is the same trade or business. Temporary generally means less than one year. What constitutes a regular place of work can be squishy since it varies by circumstance. Things to look at are is it short term and irregular? Or is it regular and long term?
One example the IRS has given is a doctor who visits several different offices and hospitals regularly by driving from his home to that location. They said those places are his regular work locations and the commuting is not deductible. (PLR 9806007) Also think of a construction subcontractor with no regular work location. In that case the metropolitan area for all practical purposes is his regular work location and the distance from home to first work location in the area is nondeductible commuting. Tricky isn’t it?
Home Office – In this case if you have a home office as the principle place of business, the miles from there to other work locations in that trade are deductible and wouldn’t be excluded. Another hurrah for the work from home people! Hurrah!
The IRS has a great chart that illustrates this. I’ve noticed most people do not deduct miles according to this IRS chart. It may be wise to do so.
- Some miles are deductible, and some miles are not!
Mileage vs. Actual
With the amount of times this issue keeps coming up you’d think this was a MMA championship match. Its rigged though. Mileage almost always wins. This is mainly because people have a hard time keeping exact records of actual auto expenses. (This would be things like gas, oil, tires, etc.) Most people keep track of miles. Or at least they should. How many of us have had good intentions, even put a notebook in the car, and found it five months later permanently bent into an MC Escher sculpture while trying to find a tissue in the glove compartment? The deduction can be especially valuable if you are self-employed. And if people saw how much money they would save by keeping a proper mileage record, I think everyone would do much better.
The mileage rate is changing all the time. And sometimes they even split the mileage rate in the middle of the year like they did in 2011. Nothing like adding confusion to the already confused. But that’s the way it goes. On top of that it gets even more confusing if you need to switch from mileage to actual expenses. You are not allowed to go the other way, however.
So it is likely we all have business miles at some point. The way we deduct it, keep track of it, and when it is deductible can vary like moods of a teenager. But if all the blocks fall into the right place, we can save a bundle on taxes
Top 5 Medical Deductions People Overlook
Let’s face it, medical costs can eat up a large chunk of your money. And they are unpleasant to deal with and a general hassle. So here we are combining the topic of medical costs and taxation – I’m sure this article will be a laugh riot. But regardless, it is wise to take full advantage of any tax deductions that are available for medical costs. And who doesn’t want to save money? (Put your hand down and keep reading)
While the list of available deductions is very long, it may not be a deduction that helps everybody. That is because for a lot of medical deductions, they have to total more than 7.5% of your income before they start contributing to your itemized deductions. In 2013 that is scheduled to go to 10% for those under 65. And THEN your itemized deductions normally need to total more than your standard deduction. So there are some hoops to jump through to get a benefit from those medical bills! Flaming hoops with tigers and lions! Ok maybe not, but there are exceptions to those limits – including for Ohio, which are discussed below. Here are the top 5 items I commonly see people forget to include, or didn’t know they could deduct on their tax returns:
1. Dental and Eye Expenses
When people think medical deductions, they immediately think, doctors, hospitals, prescriptions, and co-pays. They seem to forget that their glasses, contacts, and dental expenses could be deductible as well!
Don't forget dental expenses!
For dental expenses, don’t forget to consider cleaning, fluoride treatments, sealants, x-rays, fillings, braces, dentures, extractions and possibly others. Just because a dentist does it, however, doesn’t mean you can deduct it, so be sure to ask or check if there is a question.
For eye expenses, don’t forget to consider glasses, contact lenses, eye exams, and eye surgery – which can include laser eye surgery as well. There are a lot of things that an eye doctor can do and charge for so be sure to keep everything documented so you can go over it for your taxes.
Bottom line is, when you do your taxes, do a face check. Glasses? Contact lenses? Hearing aids? Dentures? Braces? Teeth? Eyes? There you go.
2. Health Insurance Premiums
OK, on the surface, people don’t normally forget this, because it is sometimes the largest item they pay for, but some people don’t realize it does not have to be subject to that 7.5% or 10% (2013) limitation. If you are self employed and not eligible to participate in a subsidized health plan through an employer of yours or your spouse, it is possible you can deduct all of your health insurance expense on your main 1040 form. The calculation is a little more complicated than that, but that is the basic gist of it. It’s worth planning for if you are eligible because it takes the deduction out of the itemized deductions game and reduces adjusted gross income, which can affect many other things on your tax return.
Ohio: Here again, if you aren’t eligible to participate in a subsidized plan, these medical costs could possibly be directly deducted if it wasn’t on your federal return. In addition, if you have excess medical expenses over the 7.5% amount (or 10% in 2013 for some), these can be factored in, as well as long term care insurance premiums. It is very easy to miss this Ohio deduction, so even if your itemized deductions don’t look so promising for the federal return, don’t ignore them!
3. Medical Miles
Many people miss the tax deduction for medical mileage
People know they can frequently deduct business miles of some sort. People also know they should keep a mileage log for those miles. But when it comes to medical miles, a lot of people completely forget about it. It is very common to have medical mileage, and if you are able to deduct medical expenses, you need to look at this hard. You can deduct expenses for the use of their own vehicle as medical transportation. The mileage rate for January 1 – June 30, 2011 was 19 cents, and it was 23.5 cents from July 1 – December 31, 2011. For 2012 it is set to be 23 cents. That may change as time passes. In addition to miles, don’t forget your parking fees and tolls. All it takes is good record keeping.
4. Chiropractors, Psychiatrists, Psychologists, Acupuncturists, Osteopathic Doctors, Physical Therapists, Podiatrists
Doctors can have different specialties, and that doesn’t mean what they do can’t qualify for a medical deduction to save money on your taxes. While there can be exceptions, it is a good idea to keep track of expenses from these often overlooked fields come tax time.
5. Crutches and Wheelchairs
So you broke your leg getting out of the bathtub and needed to get crutches. Fortunately, you do not have to disclose how you broke your leg. I do, however, recommend sharing it with me because we can all use a laugh during tax season. Now if you’ve ever broken your leg while preparing your taxes, that’s priceless. Regardless, you can deduct the cost of crutches or if necessary a wheelchair. This can be a forgotten item if you are not careful. There are a myriad of other medical devices that are out there so be diligent and keep your records straight so no potential deduction is overlooked at tax time.
If medical expenses are a major item for you, it is a good idea to consider some tax planning. The amount of paperwork when dealing with health issues is astronomical. Also, it can be challenging getting all the information together and even knowing what to get together for tax purposes. It can get complicated because you could have insurance coverage, reimbursements, adjustments, timing issues, and other things coming into play. So it is best to start during the year and not at tax time to keep yourself organized and make sure nothing slips through the cracks! And as always, if you aren’t sure, ask. Everybody has unique situations. Check with a CPA for tax advice relating to your specific situation.
See? It wasn’t that bad. Maybe medical expenses and taxation were meant to go together. Like cottage cheese and ketchup. And you may just have saved taxes and learned something too! Thanks for reading and feel free to share.
How Long To Keep Tax Returns
So you are de-cluttering and you have tax returns from 2007, 2006, etc. taking up space over in a filing cabinet taunting you, “Shreeeeed meeeee, shreeeeed meeeee….” Ok, maybe not, but you may be thinking, “Can I get rid of those?”
I get this question quite frequently and it is no wonder people keep asking me this question. There is no solid rule you can apply to everything so it can be confusing. Many people think of the ol’ three year period of limitation rule for tax returns and can be true but it is not always the case. Also, some documents related to returns you need to keep for a very long period of time. Some you don’t need to keep at all. But for now let’s take a look at how long to keep tax returns.
Tax Returns
Three years: Normally the IRS has three years to audit or make an assessment on your return. That three years starts on the tax return deadline or when you actually file a valid return. The date of filing is the postmark if filed timely or when physically delivered if not 
timely. So if you are one of those that go to post office at midnight on April 15th, it’s the “timely mailing/timely filing” rule that makes that work. If you want to shred your 2008 return that was filed March 2, 2009, don’t have a tax return shredding party on March 2, 2012. And that’s not just because its a horrible idea for a party. It’s because the three year period started on the tax filing deadline (in April), not the actual date it was filed since it was filed early. But if your return was filed on July 5th 2009 under extension to October, the clock starts on July 5th, not in October. But as far as those 2006 and 2007 tax returns, could you shred them? Maybe, but you may not want to because:
Six years: If there is a big mistake on your return, the statute of limitations could be as much as six years. There is a benchmark to cross for this: you have to omit 25% of gross income as stated on the return. What is included and what isn’t in what is used to calculate 25% can be debatable. Bottom line is, if you think there might be an issue with your tax return, best to keep it for more than three years.
Unlimited: So you haven’t filed since 2000. You think you will owe a lot for those early years. Should you have a party because those years are too long ago and beyond the IRS’s reach? Nope. A stopwatch doesn’t run if you don’t start it – unless it is broken and really creepy. But anyway, you have to start the limitation period with a valid return. Also, if you file a fraudulent return or willfully try to evade tax, there again can be an unlimited amount time the IRS can issue an assessment.
Ohio: The Ohio Department of Taxation recommends keeping your returns for four years. Same principle applies here regarding from date filed as mentioned above.
Ohio Cities: The Ohio Revised Code for cities is somewhat similar to the IRS. They have a three year limit on civil actions to collect or prosecute and possibly six years to pursue legal action in other situations. The 25% rule is mentioned here too. So definitely keep your city returns for at least these periods.
Things can get complicated if you have worthless securities (7 years) or loss carrybacks. So it is best to get specific advice from a CPA for your specific situation. But if you have a very simple return from 2000, you shouldn’t have too much to worry about regarding the IRS. However, your tax returns are useful for many other things. It can help prove income for that year, how much you paid for investments, residency, and many other things. The better option over shredding is to digitize those files if you are trying to de-clutter. Then you can keep that useful information, and then you can fill that filing cabinet with useful things, like dust bunnies, balls of twisty ties, and rubber bands.
Lose your return? Need to know what was on it? You can get a transcript from the IRS: Transcript Info. Need an actual copy? You can order copies as well (fee may apply): Ordering a Copy Info. If I prepared your return, please contact me, because I keep records for a long time. And be more careful next time!
Tax Planning Time!
With December upon us, it is the perfect time for tax planning. If you have had a windfall, or a change in circumstances, it may be advantageous to see how it will affect your taxes. No one likes a surprise tax bill and the sooner you can plan, the easier it will be since you have time to come up with the money, or put it in your budget. Also, if you are in a situation to get a large refund, it would be wise to file as soon as you can to get your money.
Some tax savings can be attained even after the year end, but some things have to be done by December 31st. For example, some IRA contributions can be done up until April 16th, 2012 for the 2011 tax year. Certain self-employed retirement plans can also be done that way. However, if you are planning on increasing your itemized deductions through charitable contributions, or if you are planning on selling some stock at a loss, those have to be done by the end of the year.
Some ideas can take some time to implement so now is a great time to look at your tax situation and see if there are any tax savings to be had!