Tax Tips for Individuals

Self-Employed? Here’s What You Need to Know About Taxes

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The gig economy is booming. The COVID-19 pandemic has created a demand and an opportunity for workers to profit off their skillsets outside from traditional employment. In fact, country music star Dolly Parton even updated her classic hit “9 to 5” to speak to the growing number of entrepreneurs who are getting their side hustle on after clocking out of their day job. Now more than ever, people are working “5 to 9” and building a business from their own know-how.

Anyone who earns income directly from clients — as a contractor, freelancer or small business owner — and doesn’t have an employer that withholds money from their pay for tax purposes, is generally classified as a self-employed worker by the IRS. If you’re self-employed, it’s important to understand how taxes work, so you can avoid owing more than your fair share to the government. Being in business for yourself can lead to higher taxes and more complex tax returns than you bargained for.

The self-employed and tax withholdings
Self-employed workers are responsible for paying taxes through estimated tax payments. These estimated payments must be sent directly to the IRS on a quarterly basis — by April 15, June 15, September 15 and January 15 — if you expect to owe at least $1,000 in income tax at the end of the year. Failure to plan properly and pay enough estimated taxes during the year can result in a tax penalty and a large surprise tax bill. By paying at least 90% of the tax you owe or 100% of the total tax owed from the previous year, the IRS will typically not assess a penalty.

If your hustle isn’t very lucrative (yet), a net income of $400 or more from self-employment means you can expect to pay up on those earnings — even if you’re already paying taxes through your traditional job. For example, if you work as an employee year-round, but you take on small contract jobs on the side to make extra cash, that revenue must be reported as self-employment income when you file your tax return.

Traditional W-2 employees split the cost of paying into Social Security and Medicare with their employers, but self-employed workers must pay the full amount themselves. As a self-employed worker, you’re on the hook to pay the self-employment tax, which goes toward Social Security and Medicare, in addition to normal income tax. 

There’s no avoiding Uncle Sam
Preparing your annual return and calculating quarterly taxes as a self-employed worker can be tricky. That’s why the experienced CPAs at NJ accounting firm Magone & Company can help you navigate tax laws and ensure tax compliance. We’ll also help you maximize your return, saving on any tax write-offs you may be entitled to as an independent worker. Send us a message or call 973-301-2300.

Amending a Prior Tax Return is Easier Than You Think

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Tax returns can often be filed with incomplete or incorrect information, leading to more tax trouble than you bargained for. If you filed early in years past, you might’ve overlooked income from a temporary job or a side gig. Or you may eventually realize that you’re entitled to an extra deduction or exemption. Lucky for you, the IRS routinely processes a significant number of amended returns each year.

For errors beyond simple math
If you need to change your filing status, income, allowable deductions or credits, amending your return is essential. An increase in reported income, for example, is likely to result in more tax due, while an additional deduction or allowable tax credit could get you a larger refund. And who wants to miss out on money owed?

An amended return adds the corrections to the original return. Individual income tax returns filed with the IRS can be amended up to three years after the due date of the original return by filing IRS Form 1040X. A separate Form 1040X is necessary for each year being amended and must be mailed in its own envelope to the address provided in the instructions. A copy of the original return itself isn’t required, but any added IRS forms must be included, as well as any other supporting documents that can help substantiate the amendment.

It can take several weeks for the IRS to process an amended return. An amendment to a federal return might also require a change to your state return, especially if an increase in income is reported.

Ensure that a tax expert has your back
If your amended return results in asking for a large sum of money back or owed, it may be in your best interest to consult with a tax expert. At Magone & Company, our NJ CPAs specialize in tax resolution and can help navigate the tax amendment process. Give us a call today at (973) 846-8265  to schedule a no-obligation consultation.

6 Millennial Money Mistakes That May be Hurting Your Wallet

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By 2025, Millennials will make up 75% of the workforce. This generation — composed mostly of twenty- and thirty-something children of Baby Boomers — is unique in that it faces the most uncertain economic future of any generation since the Great Depression.

But thanks to factors like massive student debt and a fondness for immediate gratification over long-term savings, Millennials also have a reputation of succumbing to some avoidable mistakes when it comes to finances.

Whether you’re a Millennial or not, be aware of the following six behaviors before they get in the way of your financial goals:

  1. Assuming too much credit card debt on too many cards. Building a credit history is an important step to obtaining a mortgage, car loan or apartment. But letting it get out of control can be risky. Stick to a couple of major cards with reasonable terms.
  2. Not maintaining a rainy-day or emergency fund. A rainy-day fund saves you when there’s an unexpected car repair or plumbing backup — a short-term blip. An emergency fund, however, will get you through a job loss, an injury or a pandemic. Most experts recommend stashing away three to six months of living expenses to create adequate emergency savings.
  3. Making big splurges without considering the consequences. It can be tempting to treat yourself to the best of the best while you have the cash. But buying too much too soon can set you up for future regret. Strike a balance between what you can live with now and your goals for the future.
  4. Failing to put away money for retirement. Yes, it may seem far away, and you’d rather use the money to pay for things in the present. But a retirement plan offered by your employer is free money your future self will be grateful for.
  5. Thinking you can save later. Saving is a habit that’s harder to start as you get older and life gets more expensive. By starting early and living beneath your means, you’ll have more time to build a larger nest egg.
  6. Not making — and sticking to — a budget. There are three main categories: needs, wants and nice-to-haves. You need to pay your rent or mortgage, but a luxury car would be just that — a luxury. Knowing what you should and shouldn’t be spending your money on is key to a financially secure future.

The road to financial security can be a long one for any generation. But it’s not impossible when you’re committed to making smart money decisions. With smart strategies for tax planning, the knowledgeable CPAs at Magone & Company can help keep you focused on financial success. To learn more, give us a call today: (973) 301-2300.

The Procrastinator’s Guide to Surviving This Year’s Tax Season

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If you’re a procrastinator, tax filing season is probably the worst time of year. With deadlines looming, filling out all those complicated forms and making sense of the ever-changing tax code can seem like an overwhelming task.

But no matter how long you put it off, the April 15th tax filing deadline will arrive, and what you do to get ready will make all the difference. Here are three timely tips you can use to get a jump on tax filing season:

  1. Find last year’s return now. Go ahead, we’ll wait. It’s stressful to hunt for vital information at the last minute, so make sure you have it in hand well before you need it. Your previous return is required to verify your identity — an important step the IRS implemented in the face of growing identity theft and tax filing fraud.
  2. Touch base with your tax professional early. Don’t wait until March to call or email your CPA. Keep them in the loop of any changes since last year’s filing. Did you get married, have another child, sell a business interest, receive PPP funds or withdraw early from a retirement account? Make sure they have the most current filing information to stop easily avoidable errors.
  3. Gather tax forms as they arrive. Facing the tax deadline with a stack of papers is daunting — even for the non-procrastinator. Instead of waiting until everything is ready to go, gather documents as you receive them and save them in a dedicated folder on your computer.

Miss the deadline anyway?
Most often, a decision made deliberately and slowly is preferable to one made in haste. But as a procrastinator, you know things don’t always go as planned.

Last-minute snags may happen despite your best efforts, but you don’t want to mess with the IRS. Keep in mind that filing for an extension doesn’t absolve you of paying the amount you think you owe.

If you’ve missed filing in the past, the NJ CPAs at Magone & Company can help. To learn more about our tax resolution services, give us a call today at (973) 846-8265.

Four Secrets of a Tax Preparer: What You Don’t Know Can Cost You

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Tax time will be here before you know it. If your return is a simple one, you may be up to preparing and filing yourself. But if your situation is somewhat complicated, seeking the help of a qualified professional may be a smart move.

When you look to hire a professional, keep in mind that training, certifications and expertise can greatly vary from one tax preparer to another. And what you don’t know about them can leave you on the hook for a hefty tax bill.

#1. Many tax preparers lack tax-specific training or expertise. Just because an employee of a large tax preparation company is allowed to complete tax returns doesn’t make them an expert. In fact, the only pre-requisite for obtaining the required preparer tax identification number (PTIN) to file taxes on your behalf is the completion of a simple form — one that takes about 15 minutes to fill out.

Before you engage any tax professional, ask questions about their specific training, qualifications and expertise. Find out how long they’ve been preparing returns, ask about audits they’ve been involved in, and share your personal tax situation. Above all, ensure that you’re confident with their ability to handle your tax return properly.

#2. They very likely won’t be preparing your return. It’s an open secret in the world of tax preparers that returns are prepared in stages. That means the owner of the firm or the most experienced professional will probably not be the one who initiates your return. Instead, a junior associate will likely enter your income information and other relevant data, identify potential deductions and tax credits and give your return a quick review. Once that’s done, a senior advisor or tax preparer verifies the return and signs off on it.

The sheer number of tax returns that experienced firms handle during a busy season makes this multi-step process necessary, but it’s important to know how things work. At Magone & Company, we’ve honed a rigorous quality assurance process to ensure your return gets the right level of attention. Read what our tax clients have to say.

#3. They may not research unusual deductions and tax breaks. Your tax preparer will typically apply the most common deductions and tax credits to your return — things like deductions for educational expenses and health care costs, as well as earned income or retirement tax credits, etc. But what they may not do is research more unusual tax credits and deductions, even if they could potentially save you money.

Keep in mind your accountant is not a mind reader. Without documentation and/or mention of situations such as property held in trust or part ownership of a business, it’s difficult to identify the best way to proceed to minimize your tax burden.

Discuss situations like these with your tax preparer. You may need to pay an extra research fee or renegotiate the cost of preparing and filing your return, but the tax savings could be well worth the extra cost.

#4. CPA doesn’t mean tax relief pro. When clients get into tax trouble or get behind on paying their tax debt, they often turn to the very same tax pro that prepared the return. Unfortunately, most CPAs and tax preparers are not skilled in tax relief.

Tax relief means they know all the available IRS programs to settle your tax debt or give you favorable payment terms that don’t drown you in penalties and interest. Even if they think they know, they may not be experienced in negotiating with the IRS on your behalf.

Get tax season off to a solid start
Tax season may look a little different this year, but you can count on the tax professionals at Magone & Company to provide you with straightforward, socially distanced tax preparation. To learn more about our virtual services, call our office at (973) 301-2300.

Avoid These 5 Common Tax Filing Mistakes That Can Get You In Tax Trouble

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Whether you file the simple 1040EZ or a complex 1040 with multiple schedules, making a mistake on your tax returns could lead to big tax trouble. Something as simple as a math error or unsigned form could invite extra attention from the IRS.

The tax agency sees those mistakes every year, and IRS representatives warn taxpayers to be careful when filling out their forms. Even if you think you have everything filled out perfectly, it never hurts to double-check and look for these common errors.

#1 — Assuming your tax pro prepared your taxes properly
Blindly trusting your accountant or tax preparer to file your taxes correctly can be costly. Most tax professionals do a thorough job, but letting them file without your careful review is a mistake.

We resolve back tax problems for people, and often what gets people in trouble is a simple mistake, like forgetting to report income, missing deductions or taking too many deductions. These are sometimes honest mistakes that if not caught early can trigger red flags and have the IRS sending you balance due notices.

No one knows your financial situation better than you, do so it’s important you double-check your return so you’re not blindsided with an unwanted surprise.

#2 — Waiting until the last minute
Filing taxes is stressful enough. Don’t make things worse by waiting until midnight on deadline day to get your return in the mail. Give yourself plenty of time to gather all the necessary documents and complete your return.

Keep in mind that unexpected problems could interfere with your last-minute tax filing plans. Getting your taxes completed early is the only way to protect yourself from unforeseen circumstances that can delay your tax filing.

#3 — Failing to file on time
If you cannot file your return on time, you can ask for an extension by filling out a single form. Even if your documents are in disarray, there is no excuse for not filing on time. An extension gives you six more months to get everything in order and complete your return.

Keep in mind that even when filing an extension, you will still need to estimate the tax you owe and make your payment. Filing an extension extends the amount of time you have to get your return to the IRS, but it does not provide a reprieve from your tax debt. If you wait to make your tax payment, you will get hit with penalties and interest.

#4 — Not making a backup or keeping good records
Making backup copies of your tax returns, income documents and schedules is an essential part of tax planning and preparation. Set up a folder or file box and use it to store your tax documents as they come in, and then scan each one before you put it away.

Once you have completed your return, be sure to make copies of every document, including your W-2 form and tax schedules, before sending the return to the IRS. If you file electronically, save a PDF copy of your return before completing the final step. Save all of those electronic tax documents on your computer or cloud storage device. Ordering a lost copy of a past year’s return from the IRS is time-consuming and expensive; you can save time and money by making your own backup copies. If the IRS audits you or requests more information, having your own records organized will be extremely helpful in the process.

#5 — Ignoring letters from the IRS after you file your taxes.
Sometimes the IRS will send follow-up correspondence, especially if you owe them money. It can be easy to ignore the first few letters. Even if you have the intention of paying your taxes soon, you should still take action and either get on an installment agreement or reach out to a reputable tax relief firm if your financial situation requires it.

That’s not all. Here are some suggestions to keep in mind if you’re preparing your own return.

Owe back taxes?
Our firm specializes in tax problem resolution. And you certainly don’t want to talk to them yourself. If you want an expert tax resolution specialist who knows how to navigate the IRS maze, reach out to schedule a virtual or in-person no-obligation confidential consultation to explain your options to permanently resolve your tax problem. Need immediate assistance? Call 973-846-8265 today.