Our Most Commonly Asked Questions
Do I have to report income if it is not reported to me on a W-2 or 1099?
Yes. You are responsible to report all of your income, regardless of whether it is reported to you on a W-2 or 1099. This includes work you perform for cash.
Do I need my make individual estimated tax payments?
The law says that a taxpayer is required to pay either 110% of the previous year’s tax or 90% of the current year’s tax equally throughout the year. There are two ways to pay income tax: withholdings through your payroll checks or making quarterly estimated income tax payments with Form 1040-ES. Payroll tax withholdings are deemed to be paid equally throughout the year regardless of when the actual withholdings took place. Quarterly payments must be made equally before each deadline to avoid penalties.
Self-employed individuals usually end up making estimated quarterly tax payments based on 110% of the previous year’s tax because 90% of the current year’s tax is more difficult to predict.
Do I need to keep a mileage log of my business miles?
Yes. If you are ever audited, the IRS will ask you to produce a contemporaneous record documenting where you drove, when you drove, the mileage, and the business purpose of the trip. This requirement exists for both vehicles owned by the business and vehicles that you own personally that were reimbursed using the standard mileage rates.
Do I need to pay any tax with my extension?
Extending your tax deadline is only an extension to file your return – not an extension to of time to pay. If you think you will owe tax when you file, then you will need to make sure those taxes are paid before original deadline to avoid paying penalties and interest.
How long do I need to keep my tax records?
Generally, you must keep your records that support an item of income or deductions on a tax return until the period of limitations for that return runs out. The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or that the IRS can assess additional tax. For individuals, this period is usually three years and this is the period we recommend. However, some documentation should be kept longer and certain circumstances can open prior periods to review.
For more information, please visit http://www.irs.gov and type “how long should I keep records” in the search bar at the top right of the screen or see Publication 552, Recordkeeping for Individuals.
How much can I defer into my 401(k) plan?
For 2014, the amount of elective deferrals that you can contribute to your traditional 401(k) plan is $17,500. Those who are age 50 or older are allowed to defer an additional $5,500, for a total of $22,000. These limits are subject to cost of living increases after 2011.
Please keep in mind that these limits apply to all 401(k) plans in which you participate (i.e. you add all contributions in all plans you participate in to determine if you exceeded the limit). SIMPLE IRA plans and IRAs have different deferral limits.
I have extended my tax returns. What is the extended due date?
When you file for an extension, your returns will be due six months from the original filing deadline. For corporations and partnerships, the extended due date is September 15th. For individuals, the extended due date is October 15th. Remember that any tax liability is still due on the original filing deadline.
I have my own business. Can I deduct health insurance premiums?
Generally, health insurance premiums for self-employed individuals are deductible on their individual tax returns. There are certain requirements that must be met, so it is important to discuss your situation with us to determine the appropriate tax treatment.
I just got a bill from the IRS in the mail. Should I pay it or have Cook Martin Poulson review it?
The IRS has recently increased their efforts to raise tax revenue by increasing compliance. Unfortunately, there are times where the IRS imposes taxes and penalties due to lost documentation or errors on their part. Many people are intimidated by the IRS and pay these bills out of fear.
Our recommendation is for you to forward any notices or bills to us you receive so we can review the matter and draft a response, if necessary. In most cases, it will not take long for us to determine the legitimacy of the bill and if you need to pay it.
I just got an e-mail from the IRS asking me for personal information. Is it legit?
No. The IRS never communicates or requests personal information via e-mail. Do not reply, open any attachments or click on any links. You should report the scam to the IRS by forwarding the e-mail to the IRS at firstname.lastname@example.org.
I just received an IRS notice. What do I need to do?
Please forward the notice to us immediately, as the IRS usually requires a response by a certain date. It is important that we have as much time as possible to evaluate the notice and draft a response. Most issues can be resolved quickly, but it is never a good idea to wait until the day of the deadline or to let the deadline pass without action.
Is it better to lease of buy a vehicle for tax purposes?
Like many situations in tax, the circumstances and financing terms available dictate the net benefit or cost of leasing versus purchasing a vehicle. Generally, trucks and SUVs are more tax friendly when purchased because they can be depreciated faster. Smaller vehicles like sedans may be better to lease since the lease payments can be deducted and may be larger than the allowed depreciation. You should also keep in mind how many miles you plan on driving the vehicle since putting on too many miles on a leased vehicle can be costly at the end of the lease.
Our recommendation is to negotiate with the dealer the best lease price and the best purchase price, then consult Cook Martin Poulson to help run the numbers and make the best decision for your needs.
Is it better to take the mileage deduction or take actual car expenses for my business auto expenses?
It depends on how many miles you are driving in a year and the type and cost of the vehicle you drive. Ultimately, we want to choose the method that gets you the larger deduction. Generally, people who drive a lot of miles and have small vehicle, like a sedan, will choose the mileage method. On the other hand, people who drive trucks and SUVs usually choose to deduct actual costs.
In the first year that you own a vehicle, we do a simple calculation to determine which method will work best for you. Keep in mind that once you choose a method you are required to maintain that method for the life of the vehicle.
Someone told me that I have to buy a truck over 6,000 lbs. in order to depreciate my vehicle. Is this true?
Any vehicle used in a business can be depreciated (expensed over time). However, the depreciation deductions for passenger automobiles are limited to a certain amount each year. The definition of “passenger automobiles” is misleading because it includes trucks, vans and SUVs built on a truck chassis if their loaded gross vehicle weight is 6,000 pounds or less.
Certain vehicles are outside the passenger automobile definition because they weigh more than 6,000 pounds. These vehicles are not subject to the special depreciation limits placed on passenger automobiles. Very few (if any) cars will escape the depreciation limits because they must have an unloaded gross vehicle weight of more than 6,000 pounds. However, trucks and vans (including mini-vans and SUVs built on a truck chassis) are not passenger autos if their loaded gross vehicle weight is more than 6,000 pounds. Purchasers of these “heavy” vehicles may enjoy an increased depreciation deduction in the year the vehicle is placed into service.
What are the benefits of an S-corporation over a sole proprietorship?
The primary advantage to an S corporation is that the business income may be distributed to the owners free from self-employment tax. However, S corporations are required to pay their officers “reasonable” salaries for their time and effort. What constitutes a “reasonable” wage is open to interpretation and the subject of several tax court cases. Salaries and wages paid to officers are subject to the same employment taxes as a sole proprietorship’s income, but the corporation pays the employer portion. The income of the S corporation then “flows through” to the owners and is taxed at the individual level as ordinary income. This income is not subject to self-employment tax.
100% of sole proprietorship profits are subject to self-employment tax, which is 15.3%. A sole proprietor can deduct one-half of the self-employment tax as an “above the line” deduction on his 1040.
Tax savings are typically realized on the amount of S corporation income that exceeds the reasonable salary or wage paid. However, S corporations also have increased reporting and recordkeeping requirements and may not be appropriate in all situations. Please call us to discuss your options and to determine the best entity choice for your particular situation.
How do I get a copy of my tax return?
You have several options if you need an additional copy of your tax return. First, we store copies of your tax returns in your ShareFile account. You can access your ShareFile account by logging in at cookmartin.com. If you would like a copy of your return sent to you or a third party, you will need to complete a release form. After we receive the form, we can send you a copy by e-mail, fax, or you may pick it up at our office.
How long will it take to complete my tax return?
We strive to complete all returns within 14 days of receiving your tax information. However, missing information or messy records may delay the completion of your return. In addition, you will need to review your return, sign Form 8879, and submit the signed Form 8879 to us before we can e-file your return.
What are my options to pay my Cook Martin Poulson fees?
You have several convenient options to pay our fees. The easiest way to pay is online at cookmartin.com\billpay. You can pay online either by check or credit/debit card. If you will be paying by cash, check or money order, you may drop off your payment at our office or mail it in.
How do I set up EFTPS?
First, you will need to create an account by visiting https://www.eftps.gov/eftps and clicking on the “Enrollment” tab. After completing the questionnaire, you will receive a PIN in the mail in five to seven business days. After receiving your PIN, you will need to return to the EFTPS website to set up your account and enter your bank information.
Please make note of your internet password as you will need it each time you make payments through EFTPS.
We would be happy to assist you in setting up an EFTPS account. Please give us a call if you require assistance!
What happens if I don’t pay my 941 deposit on time?
Penalties may apply if required deposits are not made on time, not deposited through EFTPS or if the deposit made is less than the amount required. For payments 1 to 5 days late, you will be charged a penalty of 2% of the required deposit. For payments 6 to 15 days late, the penalty increases to 5% of the required deposit. For payments made 15 days or more past the due date, a 10% penalty will be charged.
What is a Form 940?
Form 940 is used by an employer to report their annual federal unemployment tax information and calculate the amount of federal unemployment tax due. Form 940 is due each January 31 for the previous calendar year. If the liability reaches $500 the tax must be paid by EFTPS deposits during the year. Please note that there are certain industries and wage limits that may exempt an employer from being required to file this form.
What is EFTPS?
EFTPS, the Electronic Federal Tax Payment System, is a free tax payment system provided by the United States Department of Treasury. You can use EFTPS to pay federal taxes electronically via the Internet or phone 24 hours a day, 7 days a week. You can also schedule tax payments in advance. For more information, please visit: https://www.eftps.gov/eftps
When are quarterly payroll tax forms and/or 941 tax deposits due?
Generally, payroll tax forms and deposits are due by the last day of the month following the end of the quarter. However, if your federal tax liability is $2,500 or more the taxes are payable by the 15th of the month following the end of the quarter.
When do you need my information for quarterly payroll taxes?
To ensure that your payroll tax returns are prepared prior to the filing deadline, we need to receive your information as soon as the last business day of the quarter has passed (i.e. March 31, June 30, September 30, and December 31).
What is the maximum gift I can give without being taxed?
The maximum amount that can be given to another individual each year without having to file a gift tax return is $14,000. Married couples may gift up to $28,000 without a filing requirement. You may give up to the maximum amount to as many separate individuals as you like each year without being required to file a return or pay gift tax. Please note that there are no tax deductions for gifts other than for donations to charities.
However, the annual exclusion and other gift tax deductions are irrelevant for people who will remain under the lifetime gift tax exclusion, which for 2014 is $5,340,000. For example, if a single individual makes a $15,000 gift in 2014, they will have use up only $1,000 of their lifetime limit (i.e. the amount of the gift that exceeds $14,000) and no gift tax will be incurred (although they will be required to file a gift tax return).
Gift and estate tax planning can quickly become complicated, and the laws change frequently. Please call us if you’d like to discuss the options available to you!
How much will it cost for you to prepare financial statements?
The cost to prepare financial statements can vary greatly based on the type of statements needed, the scope of the engagement and the time required to complete the project. Please contact us to discuss your needs!
Cook Martin saved us over a hundred thousand dollars in taxes.