3 reasons you should report “that income” on your tax return!

photo(3)Why reporting your self-employment income is more beneficial than you think!

Every person who receives income in the form of tips, cash, stipends and other types of income are faced with a tough question at tax time.

Should I include this income on my tax return?  And let me tell you, the answer is …YES! [Read more…]

Oh No! Will your tax return be tardy?

If you are like the rest of the 5 million individuals the IRS expects will put their tax return on extension, don’t be alarmed!  Here are a few tips if you have yet to file your tax return!

 

Ask for an extension

If you simply don’t have the time or the effort to get your return out before midnight, consider filing an extension.  The IRS offers a service via their website, Free File, which allows anyone to file for an extension or you can manually prepare your Form 4868.  Both options will provide you with an additional six months to file, extending your tax return’s due date to October 15th instead.  Keep in mind, filing an extension will help you avoid the failure to file penalty, which could be assessed at 5% monthly of unpaid taxes.  In addition, this penalty can be assessed up to a whopping 25%!

 

Yes, the IRS still wants their money!

While filing an extension will give you time to file, it does not however, give you additional time to pay.  If you file for an extension, you are required to pay 90% of the actual tax due.  Failure to pay will expose you to the failure to pay penalty, which is approximately ½ of 1% monthly up to a 25% maximum penalty.  If you can’t afford to pay, at the very least, send something in order to reduce penalties.  In addition, consider using other payment options like an installment agreement, which would allow you to make monthly payments on the amount you expect to owe.

 

File past tax returns

Not only is your 2013 tax return due, but keep in mind, April 15th is the last day to claim a tax refund for the tax year 2010.  The IRS allows individuals to claim a return by filing an original tax return within 3 years of the tax deadline.  Otherwise, you risk the chances of obtaining your tax refund.

Keep in mind, the IRS does not access a failure to file penalty for returns due a refund.

Remember: your choice, your future!

 

Kemberley Washington is a certified public accountant and professor at Dillard University.  Subscribe to her blog at kemberley.com or connect with her on Twitter @kemwashcpa.

Don’t believe the hype! You can’t claim these on your tax return

Being a CPA, I often get tons of calls from friends I haven’t heard from throughout the entire year. Of course, they are not calling to see how I am doing, but just want to pick my brain about how they could boost their tax refund!  Whether it is determining whether they can claim their long lost cousin or file head of household (although they are married and living with their spouse), it is important I help them sort through the “hype!”

#1 Myth – I can claim mileage traveled to/from work

Traveling to and from your regular place of employment is simply not deductible. But let’s look at what is. The Internal Revenue Service (IRS) will allow for travel back and forth for business related trips. For example, let’s say you are an attorney and you have meetings with clients throughout the day, the mileage traveled to and from these meetings are considered as deductible expenses. You have the option of taking actual cost or the standard mileage rate of .56 cents (2013) for each mile traveled.

However, if you have a second job and you traveled from your primary place of employment directly to a second job, your mileage traveled is considered a deductible expense. For example, you work at a university and also a night job at a community center. Your travel is considered a deductible expense. For more information, view IRS Publication 463.

#2 Myth – I can deduct my time donated to a nonprofit

I had to include this myth, because just this year alone, I was asked about this several times. But the IRS does not allow for a deduction for services provided to a nonprofit. For instance, if you are a chef and decide to donate your time to cook for homeless individuals at a local shelter, your time donated is not deductible. However, you may be able to deduct your mileage traveled to and from the nonprofit, payments made for food and supplies, or even amounts given to the organization.

#3 Myth – I can claim my work clothes as an deduction

This is also one of the biggest misconceptions. Many people think they are able to claim the cost of their clothing and cleaning expenses on the tax return. Now granted, in certain instances this cost may be deductible if the clothing meets two requirements. These requirements are (1) the clothes cannot be suitable for everyday wear and (2) it is a condition of employment.

However, it is not enough to say “I don’t wear these anywhere else!” It has to meet the requirements listed above to be deductible. For more information, visit Publication 529.

Remember: your choice your future! 

Kemberley Washington is a professor at Dillard University and certified public accountant.  Follow her Twitter or connect with on FaceBook.

Does Uncle Pete owe you money? Deduct it!

Does Uncle Pete owe you money? Deduct it on your tax return! This can get a little sticky, especially if you are expected to see him at the next family reunion.  If you tried over and over again to get your money back, the Internal Revenue Service (IRS) will allow you to take a nonbusiness bad debt deduction on your tax return.

So, how does it work?

Before you go crazy with this deduction and deduct everything that everyone has ever owed you, there are a few things you should know.

Yes, it has to be a loan.

The most essential requirement is that it has to be a loan.  Simply put, this can’t be a situation where you gifted money to your ex-girlfriend and then after a horrible breakup you now decided it was a loan instead! The IRS requires at the time of the transaction that there was an intention for the money to be a loan and not a gift.

Therefore, there was a real expectation that the money would be repaid and it was a bona fide loan. At the time the loan was established, each party must’ve had an understanding that it was a loan with the expectation to be paid back at a later time.  While it doesn’t require parties to have signed a promissory note of some sort, this is not a bad idea to substantiate that a loan existed.

Did you try to get your money back?

While the IRS does not require you to go to court to retrieve your money, it does require you to take reasonable and necessary steps to obtain your money. The law requires you to show evidence that you have tried to collect. A person filing bankruptcy, experiencing a foreclosure, loss of a job or other adverse situation that could prohibit his or her ability to repay the debt, could demonstrate evidence.  In addition, the law requires that you have no real expectation to get your money back.

Deduct when it becomes worthless.

Keep in mind, it is not necessary for you to wait until the loan becomes worthless for you to deduct it on your tax return.  The IRS will allow you to deduct it in the year it becomes worthless.  For example, if you know you have no real chance of ever getting your hard earned money back, consider taking this nonbusiness bad debt deduction this tax season.

If you find that you do have a nonbusiness bad debt, report it on your tax return as a short-term capital loss.  The IRS requires you to attach a statement with a description of the debt, the relationship, and any efforts you have made to attempt to get your hard earned cash back!  For more information to see whether you qualify for this deduction, visit the IRS website and refer to Publication 550, Investment Income and Expenses.

Remember: your choice, your future!

Kemberley Washington is a certified public accountant (CPA) and professor at Dillard University.  She writes a personal finance blog at Kemberley.com.  Follow her on Twitter at @kemwashcpa.

When the IRS Comes Knocking

You received the letter many dread, the Internal Revenue Service (IRS) has requested to audit your tax return. It could be for many different reasons. Maybe your income on your tax return did not match the amount reported to the IRS or your expenses seem to be a bit questionable. If so, you could be the lucky winner of a full IRS audit. No matter what reason the IRS decides to come knocking, one thing is certain – you must be prepared. As a former IRS agent, I have had the opportunity to participate in a host of audits, and time and time again, the key to surviving these unwanted ordeals is to make certain you understand your rights and responsibilities. [Read more…]