Everyone is eligible for an automatic tax deadline extension and the first thing you should do if you missed the tax filing deadline is file for an extension with the IRS.
This gives you until October 15th to file your taxes.
However, you should also know that if you owe the IRS money, it is due on April 15th. So even if you file for a tax deadline extension, you need to send in an estimate of the taxes you owe.
Failure to do so can result in fines or penalties.
There are no penalties or fees for not filing for an extension if you don’t owe the IRS any money.
Under IRS definition, an accounting method is a set of rules used to determine when and how income and expenses are reported.
Normally for IRS purposes, the accounting method; cash vs accrual is chosen before you file the first business income tax return. It must then be used on a consistent basis for the life of the business, unless changes in the business occur that statutorily necessitate a change in the accounting method. If you wish to change methods for particular reasons of your own, you must get written permission from the IRS.
When you bill the client, when you actually receive the money and bank it, and when the job and its guarantees reach completion can each define when you have to report the income.
Normally, you calculate your income and expenses by using three major methods: 1) Cash Method; 2) Accrual Method; or 3) Hybrid Method in which select elements of cash and accrual are combined.
The Wall Street Journal
By Laura Saunders
March 5, 2016 1:00 a.m. ET
Working on your tax return? Put your records in order now to cope with a challenge from the Internal Revenue Service down the road.
To see the difference proper proof makes, consider the results of two Tax Court cases released in December. In the first one, the judge ruled that a business consultant owed more than $23,000 in taxes and penalties for 2010 and 2011 because he didn’t have convincing records of write-offs for wages, travel, meals and entertainment.
The same week, another judge ruled that a couple who owned a small business could deduct nearly $7,000 in mileage expenses for business travel in 2010—even though their records were handwritten on index cards, and some were missing.
“The better your records, the less agita you’ll have with the IRS,” says Ed Mendlowitz, a CPA with accounting firm WithumSmith+Brown who is based in New Brunswick, N.J.
The tax rules on record-keeping have a surprising history. In the 1920s, the entertainer George M. Cohan—who wrote the songs “(I’m a) Yankee Doodle Dandy” and “Give My Regards to Broadway”—deducted more than $50,000 for travel and entertainment related to his profession, including “entertaining” drama critics. Mr. Cohan didn’t have receipts for many of the expenses, so the IRS denied them.
In 1930, however, the celebrated jurist Learned Hand ruled that Mr. Cohan’s lack of records didn’t bar him from taking deductions, as long as they had a basis in fact and could reasonably be estimated. His pro-taxpayer decision became known as the Cohan Rule.
Congress has since whittled away Mr. Cohan’s tax legacy by enacting stiff standards for some deductions, especially ones subject to abuse. As for the IRS, its gold standard for write-offs without receipts, such as miles driven in one’s own car for business, is “contemporaneous records.” That means notes made when the expense was incurred, such as a log recording miles driven.
But IRS agents and judges also can accept good-faith estimates and other forms of proof for write-offs. Because the couple in the December case kept timely records on index cards, the judge allowed their testimony regarding some missing cards.
As you make your way to this year’s April deadline, here is record-keeping advice from experts.
Avoid charitable-donation pitfalls. Current law is both clear and rigid: taxpayers who make cash contributions need proper proof of the donation in hand before filing their returns in order to get a deduction. If the taxpayer gets the proof only after filing, the IRS could disallow it.
Proper proof of a cash donation typically consists of a letter from the charity giving its amount, date and the value of anything (such as a tote bag or dinner) received in return. That value must be subtracted from the deduction.
The rules for other types of donations, such as property, are also persnickety about proof. In a famous 2012 case, a California couple lost an $18.5 million deduction for property donated to charity because they didn’t have the correct records. The judge acknowledged that the decision was harsh, but said the law left him no choice. For more on substantiating charitable deductions, see IRS Publication 526.
Take care with T&E. Large deductions for travel, meals, and entertainment are often an audit magnet, so treat them carefully. Taxpayers are supposed to keep records showing who, what, when, where, and why; experts say the one people most frequently forget is the “business purpose” of the activity. Suggestion: when setting up a meeting that will include deductible expenses, record the business purpose at the same time.
For details on travel, meals and entertainment deductions, see IRS Publication 463.
Update records for your home. Did you add a room to your home this year, install new windows, or add a deck? Such investments can increase your “cost basis” in the home, which could lower the tax bill when it is sold.
For example, say a couple bought a home for $100,000 years ago in a high-growth area such as Seattle. If they sell it for $700,000, the law allows them to avoid tax on $500,000 of their $600,000 profit—so they would owe tax on $100,000. If, however, they invested $75,000 in improvements over the years, their cost basis rises by that amount and they would owe tax only on $25,000 of profit.
For more about what qualifies as an investment in a home, see IRS Publication 523.
Know when to toss. How long do you have to keep tax records? The law has various statutes of limitations, but Mr. Mendlowitz offers a rule of thumb: Keep tax returns (plus substantiation) for seven years. And for assets held outside tax-favored retirement plans, keep records of their cost until seven years after the asset is sold. That, of course, can be a very long time.
Source: http://www.wsj.com
In 2011, the IRS enacted a new type of 1099 reporting form called a 1099-K for certain types of electronic payments. The 1099-K is issued by third party payment processing companies such as credit/debit card processors, PayPal, etc. for payments to vendors and contractors.
What does this mean to companies issuing 1099’s?
1099-MISC forms issued should include only payments made by cash, check, wire transfer, electronic check, ACH, online bill pay (bank to bank only), or direct deposit. If your company made any payments to vendors using credit cards, debit cards, gift cards, or any other third-party payment network (such as PayPal) – those payments should NOT be included on 1099-MISC forms because the processing companies are responsible for reporting those payments.
What does this mean to companies issuing 1099-MISC?
Companies issuing 1099-MISC forms should confirm that only those payments made with the payment types mentioned above are reported on their 1099-MISC to the vendors. For example, if the company paid a 1099 vendor $1,000 in 2015 and $400 of that was paid by credit card, then only $600 is reported on their 1099-MISC. The additional $400 paid with the credit card is reported to the vendor on the 1099-K by the credit card processing company.
Why should the payee care?
This reporting is mandated by the IRS and there are penalties to the Payor company for failure to report and incorrect reporting. In the example above, the vendor’s 1099-MISC would be incorrect if the payor reported the entire $1,000 because the credit card company will be issuing a 1099-K for the portion it paid the vendor.
How does QuickBooks help with reporting the correct 1099 information?
QuickBooks 2012 to 2016 automatically excludes from Form 1099-MISC any bill payments made using the credit card payment methods. In addition, QuickBooks also recognizes and excludes from the 1099-MISC any check payment containing one of the following notations in the check number field (limited to 8 characters): Debit, Debitcar, DBT, DBT card, DCard, Visa, Masterc, MC, MCard, Chase, Discover, Diners, PayPal. QuickBooks 2012 to 2016 also has a built in 1099 Wizard.
If you have QuickBooks 2009, 2010, or 2011, you have three options:
If you only have a few vendors that you paid with debit, credit or third party payers, you can manually search for and exclude the non-reportable payments.
If you have a lot of 1099 vendors you can purchase the downloadable QuickBooks 1099 Assistant App for $.99 to help you exclude the payments. Or…
Upgrade your QuickBooks and take advantage of the updated 1099 Wizard.
Where can I learn more?
Visit www.irs.gov and search for Treasury Decision 9496, 1099 for 2015.
You can also search within the Help of QuickBooks programs for Form 1099-MISC.
BOSTON -- A 55-year-old Lowell chiropractor was arrested Thursday on a charge of bribing an IRS auditor to ignore two improper deductions -- payoffs to two women he inappropriately touched during medical appointments -- on his 2011 income-tax form.
A probable-cause hearing is scheduled for March 5 in U.S. District Court, according to U.S. District Attorney Carmen Ortiz.
Stephen D. Jacobs, of Lowell, is charged with bribery of a public official. The complaint alleges Jacobs paid an auditor $5,000 in cash to ignore the deductions, which were in fact payments Jacobs made to two different women because he touched them inappropriately during medical treatments in 2011 and 2012.
Jacobs could not be reached for comment at his Lowell office, his cellphone or via email.
According to court documents, an IRS agent was assigned to examine Jacob's federal income-tax form for 2011. The agent reviewed a number of issues, including Jacob's student-loan expenses, business expenses, gross receipts, bank statements and other expenses.
Before their initial meeting, Jacobs allegedly called the agent to confirm the appointment. During the conversation, Jacobs inquired whether the agent had the authority to handle issues on his own.
During the Aug. 6 meeting at Jacobs' office at 16 Pine St., Lowell, several expenses were questioned. Jacobs allegedly admitted he made $5,000 in payments to two different women because he touched them inappropriately during medical-treatment sessions in 2011 and 2012, according to court documents.
When the agent disallowed the expenses, Jacobs allegedly became agitated and asked the agent, in essence, if there were anything he could do for him.
Jacobs allegedly asked, "... you are on the front line, can't we just deal with this...''
On Aug. 13, the agent made a recorded call to Jacobs, advising him they could deal with the $5,000 payments to the women at their next meeting.
During a Sept. 25 meeting, Jacobs was told the $5,000 in payments to the women were disallowed expenses. When the agent then requested other documentation for other personal and motor-vehicle expenses, Jacobs became upset, saying, "...do you want a bribe. Do you want me to pay you..."
The agent acknowledged he was willing to accept cash to terminate the examination. Jacobs allegedly offered the agent $5,000 to end the examination. They agreed to meet later that day to complete the transaction.
Later that day, at a meeting telectronically recorded by video and audio, Jacob allegedly paid the agent $5,000 in cash and the agent handed over a "no-change" audit letter.
Read more: http://www.lowellsun.com
The commander of Washington VFW Post 2661 said an ongoing IRS audit of his organization is a government intrusion.
“Honestly, I think it’s a bunch of BS,” Commander Kurt Gansmann said, adding, “I definitely feel like they are overstepping their bounds.”
It’s offensive that the IRS would intrude on an organization made up of people who put their lives on the line for the country, he said.
Gansmann added, “These politicians sit up there and make millions. For what? What are they doing? They’re not defending this country. We are.”
It appears that the IRS is targeting the VFW since this is the second post the federal agency has looked into in the St. Louis region recently. The other one was in Wentzville, he said.
VFW Post 2661 Senior Vice Commander Steve Graves also raised concerns about the IRS audit.
“Why pick on us? Graves asked.
It appears the IRS is “questioning the integrity” of the VFW and other veterans organizations, such as the American Legion, Graves added.
IRS audits of veteran organizations, such as the VFW and the American Legion, have been a national controversy recently.
Graves said an IRS official spent four days at the Washington VFW Post last week combing through documents.
“She was very diligent,” Graves said.
The Missourian sought comment from the IRS on the matter. But IRS spokesman Michael Devine wrote in an email that, “Strict privacy laws protect every individual, business entity and exempt organization from unauthorized disclosures of details of their relationship with the IRS. Unless there is public record, such as court records or documents filed in the public domain, we cannot discuss tax matters publicly.”
Audit
Gansmann said the local VFW has never taken anything it should not take, adding that the Post is run in a professional manner.
As the commander, he said he will not tolerate “shenanigans” at the Post.
“I don’t play around,” he asserted.
There are only three employees at the local VFW, and they are paid a small amount, Gansmann pointed out.
Audits have been conducted on the VFW before, but this one is more extensive, Gansmann said. The IRS is seeking information to see if members are eligible to be veterans, he added.
“She’s going through stuff that has nothing to do with taxes,” Gansmann said. “It’s getting very aggravating.”
And now the IRS official will be coming back to the VFW Post on Feb. 25 to gather more information as part of the inquiry.
The agent was from Town and Country, and she wanted to see meeting minutes, financial documents and membership records, Graves said.
Rather than targeting volunteer veterans organizations made up of people who believe in their God and country, the IRS should spend its time looking into corruption and mishandling of funds, he said.
It is not as though the VFW “funnels a lot of money” through its operation, he added.
The local Post files its tax returns, and there is much oversight within the organization, which has a board that Graves serves on, he said.
Still, Graves said the VFW post will comply with the audit since the IRS is a government organization. The IRS may be checking to see that the Post is run as a nonprofit organization, Graves said, adding that the organization is indeed run as such.
The local VFW Post is now working to gather the remaining documents that the auditor will seek when she returns Feb. 25, Graves said. Those documents include a full list of members, service dates, how much they pay in dues and whether they are current on dues, he said.
It is a lot of work compiling the information, Graves said, adding that the post has been there 75 years and there are members who have been in for 50 years.
“I’ve got 80-year-old members here,” Graves said. “I don’t remember when they were in the service.”
The IRS should be able to get much of this information on its own, Graves asserted.
VFW Quartermaster Mike Corbett said the VFW will successfully complete the review, adding that the last IRS audit was done about 20 years ago in 1993.
The IRS agent has been easy to work with and is just doing her job, Corbett noted.
“They are very thorough and go line by line,” Corbett said.
But he said the agent has not been harassing the VFW and has been accommodating with her requests.
http://www.emissourian.com
