5 things you need to know about paying estimated taxes

If you are an entrepreneur or a small business owner like me, you will want to make sure you have paid the correct yearly tax to the IRS and/or your state government.  You may also have to pay estimates is if you have a special tax circumstance or make a lot of money in a particular year.  Paying your taxes on time will help you avoid interest and penalties and give the government less of a chance to want to review your returns. Here are 5 things you should know about paying estimated taxes:

 

1. Many of you will have to pay estimated taxes

If you owe at least $1000 on your tax return, and expect your withholding to be less than the previous year, you will need to pay estimated taxes.  Types of income on which you may pay estimated taxes include income from being self-employed, alimony, gains from the sale of assets, or income from receiving a cash prize or award.

2. Pay your estimated taxes on time

The first estimated tax payment is due by the tax return filing date (generally it is April 15th).  After that, estimated tax payment due dates are June 15th, September 15th and January 15th of the following year.   If you do not pay estimated taxes in a timely manner, you may end up owing more to Uncle Sam.

3. Have your tax professional figure your estimated taxes

In addition to preparing your tax return, your tax professional can figure out your estimated taxes by using your prior year’s income, deductions, and credits in their tax planning software. Sometimes this is as simple as dividing your total tax by 4 and paying it 4 times a year.  But often times it is not as easy if you have extenuating circumstances in a given year.

4. Have your professional revise your estimated tax projection as needed

Often times self employed individuals have swings in income throughout the year due to a changing business climate. Or maybe you are in a seasonal business such as the landscape business where you make more of your money in one quarter vs. another quarter.  For this reason you will owe differing amounts each quarter to the government.  If you think there will be a substantial change in the taxes you owe during the year, have your tax professional run a new tax projection as soon as possible.

5. Pay what you owe, not a dime more or less

Your estimated taxes paid should come be very close to your total tax owed, resulting in a small refund or amount owed.   Be careful to avoid paying too little or too much:  Too little means you will owe a big chunk of tax come tax time.  Pay too much during the year is like a forced savings account, as the government will simply send you your money back the following year.  This, of course, is not great planning either way!

Listen below to Win Damon and Stu as they discuss this very topic on WNBP Radio 1450 and wnbp.com


With more than 23 years of experience as a credentialed tax professional, Stu Steinberg, CPA, MBA brings a broad depth of knowledge to his work.  He has worked with small business entrepreneurs for many years helping them plan their businesses more effectively.  He can be reached at stu@erocktax.com or (781) 247-5569 anytime.

5 things to do if you get a letter from the IRS

 

Imagine you come home from work after a very busy day, the kids are acting crazy, and you have to open one of those thick letters that came certified from the IRS.  It is generally not a very fun thing to come home to.  But it is often not the end of the world.  Here are 5 things to do if you do get that dreaded correspondence.

 

1.  Don’t panic.

If you receive a cryptic letter from the IRS that has lots of big numbers on it and says you owe money, do not panic.   First, take a deep breath.  Next, reread the letter. If you still do not comprehend what you are reading, contact a qualified tax professional, such as an Enrolled Agent or CPA, to review the letter and let you know what needs to get done.  The IRS will often let you set up a payment plan. Often times the computer generated letter is incorrect, at least partially. It is important to get educated while gathering data to represent your case.

2.  Find a qualified person to deal with the IRS

If you are seeking help in dealing with an IRS issue or IRS letter, find a CPA, a qualified tax practitioner, or an Enrolled Agent, a tax practitioner who specializes in, and is  licensed to practice before the IRS.  This should be your first stop.  Your professional will usually have hundreds of hours dealing with the IRS and will probably have seen your letter before.  If you choose to deal with the IRS on your own, be prepared to wait on the phone and know what the general reason is why you were sent the letter.

3.  Gather all the facts.

After reading the letter, review your tax return and tax documents and try to identify the issue which the IRS has called into question.   The IRS letter should identify which line items of the tax return are incorrect and what they believe to be the correct amount.  When gathering data for a particular year, be aware that the same mistake may also have been made on additional tax returns

4.  Respond to the letter in a timely manner

If the letter says to respond by a certain date, do your best to do so.  By not responding, you will receive a follow up letter that may be more threatening and often may include penalties and interest assessed on the past due amount.   To avoid that extra stress, make sure to reply to the IRS letter by the date posted.   If you believe the IRS has incorrect information, you will need to provide supporting documentation showing that you do not owe the IRS any more money.

5.  Pay the tax if you owe it

Sometimes you may legitimately owe the tax to the IRS.  If after not finding any fault with the assessed tax due, pay the tax in a timely manner to avoid additional penalties and interest.

With more than 23 years of experience as a credentialed tax professional, Stu Steinberg CPA brings a broad depth of knowledge to his work.  He can be reached at stu@erocktax.com or (781) 247-5569 anytime.

2 Videos with information on the proposed construction in Newburyport

 

Here are a couple of media posts pertaining to the big Newburyport vote on June 5th, where the city will vote to vastly improve the schools and build a much needed senior center! Vote YES for progress in Newburyport!

http://www.portpride01950.com     http://www.facebook.com/portpride

 

May 15th Public Meeting Video

Conversations with the Mayor

 

 

Port Pride spreads the VOTE YES vibe on WNBP Radio 1450 am Newburyport

NEWBURYPORT Residents:

Click below to listen to Newburyport Assistant Superintendent of schools Deirdre Farrell and Port Pride talk with Win Damon of wnbp.com and radio 1450 in Newburyport.  They review the proposed new schools and senior center to be built here in Newburyport!  Vote YES on June 5th!

 http://www.portpride01950.com     http://www.facebook.com/portpride

 

 


Port Pride – Vote YES on June 5th for New Schools and a New Senior Center!

Stu’s Letter to the editor – Newburyport Daily News

I love Newburyport.  My 8 month pregnant wife and 10 year old son Drew moved here in January of 2005 in about 6 feet of snow right before the 3rd Patriots Super Bowl Victory.   

Since then, the city has embraced us and we have made so many lifelong friends in this amazing community.  We found out shortly thereafter that not all was great, specifically as it pertained to our schools and facilities for seniors. It is for this reason I write to you today.

You see, we consider our beautiful seaside port a world class city, an oasis of sorts.  But it cannot possibly be that way if we do not take care of our children and our seniors.  Currently our kids are going to schools that are falling apart, are meant for fewer kids, and are in desperate need of updating. Every year the NEF (Newburyport Education Foundation) holds fundraisers to upgrade the woefully inadequate technology in our schools. Our seniors barely have any place to go to recognize some sort of community of their own.  

For a city with so many families and seniors, something has to give.  There are 3 projects to tackle:  a new Bresnahan School ($38 million), a remodeled Nock middle school ($27 million), and a new senior center ($6.5 million).  The cost of the first 2 will be subsidized by the state to the tune of 50%.  I also could not believe it when I read the city made a promise over 30 years ago to build a senior center.  It is LONG overdue, and the time is now for the fastest growing segment of our community.

As a local financial advisor and CPA, the math on these projects is extremely favorable.  I do understand seniors and other families on a tight, fixed budget.  I work with many people like this all the time.  But these school projects will be subsidized by the state at close to 50% of cost!  What a deal.  Interest rates are historically at the lowest they have ever been.  The construction costs can be minimized by putting the project out to bid in a very competitive environment.  The new construction will be built with “green” initiatives in mind, thus the projects will be far more environmentally friendly, leading to reduced operating costs going forward! This is most exciting to me.

Our family is now 5, with 2 wonderful girls age 7 and 3.  We feel fortunate to part of the River Valley Charter School Charter School community, but that does not minimize the importance of these projects in our minds.  Progress is what has made our country great, and the same is true for our seaside city.  We need to progress and bring our educational facilities and senior center into the 21st century. The time is now and it is long overdue.  Please vote YES on June 5th and take care of our children and seniors!  They certainly deserve it!

http://www.portpride01950.com     http://www.facebook.com/portpride

5 Tips for Sellers of Real Estate

My wife and I sold our home and bought a new one in 2011.  It was a truly crazy process and involved our home being under agreement 4 times before finally being sold!  What an ordeal.  Thank you so much Ron April of Remax in Newburyport for being slow and steady throughout the entire process, which for us lasted close to 2 years in total! Also big thanks to Ron for for educating us along the way. I have been in public practice for over 20 years and I have seen many real estate transactions come and go.  Here are 5 top tips for folks who are trying to sell their homes:

1) First, hire a quality real estate broker to help you through the process.  The broker should provide you with independent advice that is in your best interest. He or she will know the local market inside and out and may even know the right buyer for your property. I have found that is best to hire a realtor from a direct referral, someone who has used them before.  Do you research here as this is a very important step in the process!

2) According to Ron April, staging your home is the most important thing a seller can do.  Repaint the crazy colors that may look great to you (we had amazing orange in our kitchen) and paint a neutral color. Use what I call the DTRS method:  Donate, Trash, recycle, Store.  Go through your entire home and clean it out!  Donate as much as you can to charity and get a tax deduction.  Trash what needs to be trashed and recycle the rest.  It is often most important to store furniture and items you want to take to your next home that are cluttering the home.  You must make the home look as attractive to potential purchasers as you can.  A great professional stager can help you with all this, and it is well worth the money they charge.

3) Get your financial ducks in a row before the home is on the market. Pay off your credit cards, car loans, or personal loans if possible.  Square away the work situation that may be hanging over your head.  Get your bookkeeping or financial planning in order.  Take the necessary steps to improve your credit score. All these steps and more are often avoided or simply neglected by sellers and by the time their home sells, it is often more costly to buy a new one!

4) Don’t overvalue your own home – it is worth more to you than any buyer obviously!  This is mistake number 1 that sellers make.  They totally overvalue their own home and can not believe that it is not worth what they feel its worth.  Please do not make this mistake.  Your taste in homes in your own and does not represent that of the potential buyer.  Understand the market, both the other homes for sale in your area and the vital statistics of the potential buyer

5) Take hold of the BIG picture – long term rates and home ownership.  Know the financial landscape in your area.  How many homes are for sale in your hometown? How long have the homes been on the market? What are interest rates for fixed and variable rate loans?  All these factors and more will help you form a realistic opinion of the real estate market and help you with the home selling process.

 

Listen below as Win Damon of WNBP in Newburyport and I review this topic on radio 1450 AM

Stuart Steinberg, CPA, MBA has been in public practice for over 20 years.  He is highly energetic and brings a sense of optimism, creative problem-solving and a deep level of commitment to every Erock client.  He can be reached at stu@erocktax.com or (978) 247-5569

5 Reasons to Do Your Tax Planning in May

For many of us, the tax season ends with a sigh of relief. Believe me, I understand. But if you can catch your breath and make time to plan for next year’s taxes now, you’ll save yourself time and money. This is a large area to cover, but I’ve put together some of the more common scenarios that can be helped by good planning. Have a look to see if any of these apply to you. Feel free to contact me, Stu Steinberg, if you have questions about your situation 

1) You are a New Business Owner
If you start a new business that is profitable right out of the gate, consider paying taxes on quarterly installments. It’s the best way to stay on top of what you owe. Tax situations change all the time, especially when new tax laws are introduced. For example, in 2012, in addition to paying ordinary income taxes, self-employed people must pay a 15.3% self-employment tax. It’s best to meet early with your qualified advisor and bookkeeper to so that you can avoid falling behind on planning.

2) You’ve Exercised Incentive Stock Options
People who exercise and sell their stock options often see their good fortune turn a little sour at the end of the year. Often, employers don’t withhold enough for taxes on the transaction, and this results in a surprisingly high tax bill.  Also, stock options are often reported as ordinary income. That boosts the recipient into a higher tax bracket, a fact that results in a larger tax bill. That is never a nice surprise at tax time.

3) You Had or Will Have a Change in Marital Status
If you are recently divorced, your tax filing status and your tax deductions might be significantly changed. You might not be able claim the same number of children. If you’re used to writing off the interest you pay on the house you live in, understand that you might not be able to do that this year. There could be a substantial change in what you owe the IRS. Also, there are tax implications when you remarry. We often encourage couples to put the wedding off at least until January, so that they can minimize the tax impact.

4) You Withdrew Money from Your Retirement Plan
If you take money from your IRA or 401K, it’s critical that you withhold the appropriate federal and state income taxes on that withdrawal. If you’re younger than 59 ½, you will likely pay a 10% early withdrawal penalty on that money.  I always caution my clients to avoid taking money out of their retirement plans. It is only a last resort. 

5) You Get A Large Refund from the IRS
Getting a refund check from the government feels good. But it only means you’ve given Uncle Sam an interest free loan. If you update your W-4 and decrease your federal tax withholding, you can start collecting a larger pay check throughout the year. Save some of the money and put it to work for you in an investment account.
As with any tax situation, the better you plan the better off you will be. The key is leaving yourself time and your qualified advisor enough time to cover all your bases.

Recent Posts

Recent Comments

    Archives

    Categories