What to Do if You Catch a Tax Mistake

There’s probably no worse feeling than realizing you made a huge goof. And when that error is on your taxes? Forget about it – sheer panic. You already sent in your 1040 and Schedule C to the IRS, so game over. Might as well jump ship and move to Australia.

At least, that’s what you would do if you didn’t already know about the 1040X. Wait, you don’t know about it? Well, let’s fix that right now! The 1040X is one of the handiest of the tax forms as it’s practically saved thousands of people from having heart attacks for years. It’s definitely one to know about.

What Is the 1040X Form?

The 1040X, or the Amended US Individual Income Tax Return form, is a way for you to send in a corrected version of your tax filings. If you ever realized after sending in a form that you forgot to include a 1099 or include a deduction (or put in one too many!), this is the form for you.

This year, one of the big selling points of the 1040X is the existence of late 1099-K forms. Some online sellers have even gotten them only a few weeks before the deadline! This meant that they had most likely already filed and now had a completely new form to file. Luckily, the 1040X was there to save the day.

The actual form takes a little while to complete. This is mainly due to basically having to do everything twice. You have to include the information that was incorrect on your original filing, also making sure you include the corrected version of everything.

You have up to three years after the initial filing was due (for instance, for 2011 taxes you would have to file the 1040X by April 17^th, 2015), so there’s no huge rush. Take your time and get everything right the first…well, second time.

Particulars of the 1040X Form

There are a few particulars about the 1040X that are worth mentioning. For one, we mentioned taking your time to get everything right. Well, the IRS even says they recommend you wait until you get your refund or later before filing the 1040X. Why? Who knows, but it shows they’re not worried about getting your amendment instantly.

Also, there are a multitude of reasons to file an amended return. Did PayPal send a really late 1099-K? How annoying, but at least you can fix it. Just realized you could’ve deducted a portion of your mortgage and utilities because you operate your business out of a dedicated home office? That might result in a much larger refund – send in a 1040X as soon as you can.

If any of your fixes include a revised schedule such as a Schedule C to detail self-employment income and expenses, it’s a good idea to fill out a new one and send it in with the 1040X. Finally, make sure to be as detailed as you can when explaining the changes just so there’s no confusion on either end.

Need more time for taxes? File a tax extension!

Oh no! Taxes are due and there’s no time to complete them! My deductions aren’t ready and I don’t even all the receipts I need in anything resembling an order! What am I supposed to do?

If you found yourself saying these very things with the tax deadline approaching, it may be time to file for a tax extension. Yes, they exist, and work surprisingly well. All you have to do is file one simple form and voila, you have a lot of extra time to get everything ready!

But is it really that easy? Does filing a tax extension come with unforeseen consequences? Let’s take a look.

Filing

Presumably after reading the opening you probably just want to know how to file for an extension, so we’ll cut to the chase. The form you want is Form 4868. It’s an astonishingly simple form for one with such power, and only takes a few minutes to fill out. You can also file your tax extensions using online services like Turbotax Easy Extension. Though those services do charge you a small fee, they can save you the effort of finding and mailing the 4868 form. No matter how you file, you can buy yourself a six-month extension on the time you need to pay your taxes.

But there’s one major caveat you must remember when filing a tax extension. As you fill the form out, you’ll notice the information you provide is pretty basic: name, address, etc. However, the second part of the form asks you how much you owe.

Wait, what? How are you supposed to know how much you owe if you haven’t filled out your forms yet? The whole point of this was that I didn’t have time to file!

The problem is the tax extension covers your actual tax filing and nothing else. So when you send Form 4868 into the IRS, you must also submit a payment toward it by the tax deadline – this year that’s April 17^th. However, you don’t have to have an exact amount. You just have to figure out how much you estimate you owe. (Outright.com can help… sign up for a free account and estimate how much you owe in taxes today!) When you do file, you will either pay the remainder of the amount you owe or receive a refund.

What To Do After

Now that you’ve sent in the paperwork to push back your due date (and a check how much money you owe, right?), what do you do now?

You’ve been granted a six month pass on your taxes, so use it wisely. Get as organized as humanly possible. Find all those missing receipts and count up every last penny you think you can deduct on your taxes.

Don’t waste this time as it’ll be over before you know it. You want that estimated payment to be either on the money or too much so you get some in return and avoid penalties. Plus, the IRS doesn’t exactly hand out free passes all the time, so when they throw you a bone, milk it for all its worth!

Getting organized during this time can also help you in the long run. After all, you’ve probably always wanted to get your business into tip-top shape, so now’s the opportunity! Get all that paperwork into order and keep it there. Then come next year there won’t be a need to file for an extension.

This post is brought to you by Outright.com, the easiest way to manage your business finances online. Sign up today for a free Outright account!

How to Make Your Accountant Love You at Tax Time

If you think you have it bad during tax time, consider your poor accountant. Not only do they have to deal with all your craziness and random boxes of receipts you rush in at 10 PM on April 14th, they also have to put up with the same madness from their other clients!

This time of year is just as stressful for them as anyone else. After all, once they go home, they still have to do their taxes. The big difference is they know what it takes to keep it all together and you don’t – otherwise, you wouldn’t be hiring them, right?

But instead of pawning 100% of the responsibility off on them, there are a few things you can do to make their lives easier. As a result, you’ll more than likely get a better result on your tax return as well.

Get Organized

Obviously the first thing to go will have to be those boxes of random receipts. They’re not helping anyone and may be hurting your chances of getting a healthy tax refund. It’s time to get organized!

But your receipts aren’t the only thing you need to start categorizing. Everything else your accountant has to decipher and include in your taxes should be organized – expense sheets, profits and loss, the works.

This way, when a question arises, your account doesn’t have to spend hours looking for the answer – or, worse for you, calling you up wondering what the deal is. Once everything is in its rightful place, they can use all the detailed, organized info you provided and move on.

Make sure to use labels, too. It may seem like you’re helping using your own unique filing system, but if no one else can interpret it you’re right back to square one!

Don’t Be Ridiculous

“Yes, I would say I use all three of my computers solely for work.”

“Of course you should count my TV as a deduction, I put on smooth jazz when clients come over don’t I?”

“I wouldn’t say I’m quite in that tax bracket – some of this money wasn’t ‘serious’ money, more like hobby money.”

If you’ve ever heard words like these come out of your mouth, you probably also remember the look your accountant gave you shortly after. No doubt you want to try to get as much refund from the IRS as you can or lower your payment as much as possible. However, there comes a time when you’re just being ridiculous!

Making up silly stuff to try and expense or lying about how much money you made doesn’t help anybody…especially you when you get in trouble! People try to expense crazy things all the time. There was one case where a woman tried to say her gardening supplies should be a business expense as she worked from home and it was part of her company’s appearance!

So try not to stretch your accountant’s trust too thin. He or she is not there to work magic, they’re there to get you through April as unscathed as possible. Being honest with your business and the money within is a great step towards that!

1099s are Due to Contractors Today!

The big day has come! No, it’s not suddenly Tax Day (April 17^th this year) or your birthday. Today’s the day the 1099s are due to all the freelancers and contractors out there!

Now, if after reading that sentence you sat up in your chair and gasped, then you probably forgot all about this. Man, how in trouble are you? There’s probably nothing you can do to get everything out in time today right?

Not so! If you did almost have a heart attack after realizing what today is, there’s still a spot of luck for you so you don’t get hit with any fines.

1099s

First, let’s take a look at the 1099. You may not have been shocked into action because you didn’t realize you had to send them out.

So who gets a 1099? Typically, people who get 1099s are folks who you’ve paid for work but who aren’t on your regular payroll. Did a freelancer write blog posts for you over the year? Or how about an interior decorator that came in a few times to keep up your office? All these people were paid outside of your regular business, so they potentially need a 1099.

I only said “potentially” because there is another stipulation. For instance, did you know that you may not have to send a 1099 form to them if you owe less than $600? If over the course of 2011 you paid them $599 or below for their services, don’t even sweat it.

What’s on the 1099? Despite all the pressure to get these tax forms out on time, it’s a relatively simple piece of paper. The 1099 has basic information like name, address, and Social Security Number or Tax ID number, to identify the contractor/freelancer. To obtain this information, send your contractors an IRS form W-9. To make tax time easier, it’s beneficial to get into the habit of sending W-9’s to all contractors as soon as you hire them. Then, besides that information, the only other info you need is how much you paid to them in 2011.

Also keep in mind you must send your 1099 information to the IRS by March 31st. Many small business owners simply send 1099's to contractors and to the IRS at the same time to fulfill the obligation all at once. And a great solution for this is...

FileTaxes.com

Now, we mentioned there was something you could still do even in this super late hour. Our friends over at FileTaxes.com know all too well how tough it is keeping all the proper forms in line. Remember, you just have to SEND the 1099s out today; they don’t necessarily have to be in your contractor/freelancers hands.

To take the stress and mess out of filling out your 1099s, head over to FileTaxes and let them do the dirty work for you. All you have to do is create an account, enter your information, and print everything you need. FileTaxes.com will also e-file with the IRS for you. Now, your obligations are fulfilled and you can stop worrying!

Well, that is until April…but that’s why we’ve got the Small Business Tax Resource Center! We’ve got all the answer you need when it comes to taxes, and if we don’t, just ask away at Outright.com!

About the Author:
Laura Messerschmitt is the Vice President of Marketing at Outright, a free online accounting software for small businesses. She loves helping the self-employed and small businesses to be more successful and grow their businesses.

Tips for Preparing Your Business Financially for the New Year

Happy post-holidays! We at Outright hope that you had the best winter holiday possible and, of course, that you got everything that you wanted.

But everything good must come to an end, and that includes hanging back and relaxing. Now it’s time for all of us to get ready for the New Year. More specifically, it’s time to get ready for all the tax time madness that’s soon to come.

To help you out, we’ve prepared a few tips to help you and your business ease into 2012.

Inventory

When do you usually take inventory? If you do it when it’s tax time, you’re more than likely misrepresenting yourself. For tax purposes, you want to record what you had at the end of the year, not what you have in April. This is because the taxes are for 2011, and you may have amassed some material in the beginning months of 2012.

Instead of writing items down to take inventory, consider taking pictures of everything. This way you can also visualize your stock instead of merely trying to organize a spreadsheet months from now.

Pictures

Speaking of pictures, snap a few photos of your home office or workspace at the end of the year. There are several deductions you can take if the space you work in qualifies as a home office for tax purposes, and these can add up to some big savings in April. Some of these deductions include phone bills, office furniture, and even a portion of rent/mortgage.

The pictures will help not only prove you own what you say, it can also help your tax preparer find even more deductions for you to use.

Get Rid of Some Money

I don’t mean just throw it out the door (unless I’m in the neighborhood, then go ahead). But there are special deductions for 2011 that can help you out if you can risk the extra expenditure.

For instance, there’s the Section 179 deduction. It allows small businesses to expense up to $500,000 in equipment purchases made in 2011. Did you have any big equipment purchases you were considering? See if you can buy them up in the last minutes of this year to get the deduction.

And of course there’s always charity, arguably a better use of your money. You don’t always have to give money, though. If you’re looking to buy new inventory, your old and unused inventory would make a good charitable donation. It can lead to some nice deductions on your taxes. Keep in mind, though, once you donate over $500 worth of goods, the rules and requirements get tougher.

Outright

In order to get a good read on your taxes before you actually file your taxes, take a gander at your Outright account. There, you can get a good idea what you may owe in taxes and if you should take action to get additional deductions. With a little foresight and planning you’ll be in good shape come April!

About the Author:
Laura Messerschmitt is the Vice President of Marketing at Outright, a free online accounting software for small businesses. She loves helping the self-employed and small businesses to be more successful and grow their businesses.

Getting Your Business Finances Ready for the End of the Year

Well, it’s here…time to start on your annual tasks to get ready for the new year! A big part of getting ready for 2012 involves organizing your taxes. We know it’s a giant pain in the Christmas sweater, but it has to be done, or else you risk a giant payment to the IRS!

But don’t fear, because there are several things you can do to prepare yourself for this yearly paper shuffle.

Organize Receipts and Categorize Expenses

If you haven’t been doing this all year, you may have some task ahead of you. But organizing your business receipts can go a long way towards getting you ready for what lies ahead.

For one, when doing your taxes, you want to have as much information as possible. If you only have a vague idea of how much you spent on your business over the year and no valid proof, it may end up costing you. Printer paper is one thing, but what about all the travel expenses you racked up? You want all that info in hand so you can properly log it (and claim the tax deduction!).

Another reason to properly organize your receipts is again about proof. You can write all the expenses you want on your tax forms, but in the end, the IRS needs proof they exist. If you submit your tax forms and you can’t back up your claims, there will be trouble ahead indeed!

You should also consider categorizing your expenses ahead of time. This way it’s much easier to add them up when it comes time to actually do your taxes. Some of the most common categories will be utilities, transportation, supplies, and advertising, though your business may have some unique ones.

Verify Income

Now is also a good time to check all the numbers regarding how much money you made in 2011. Many of Outright’s users are self-employed or independent business owners, so they must worry about paying in quarterly taxes. This is usually calculated based off yearly income, which for obvious reasons needs to be up to date.

Some freelancers or business owners like to go off the numbers they had the previous quarter. However, you may be paying too much if you do this. This is why we recommend recalculating your income as much as possible in order to be accurate. (Confused about quarterly estimated taxes? Check out our Quarterly Estimated Tax Cheat Sheet.)

Integrate Your Financial Accounts Into Outright

There’s no sense in doing this all by yourself. Keeping track of all your business expenses and income can be tough to do, especially when you have so much else to consider. So instead of tackling tedious data entry every time you collect from a customer or buy supplies, why not let Outright help?

Integrate your bank accounts into our intuitive software, and we’ll pull in all your transactions so you never have to spend hours and hours entering them by hand. We’ll also help with the aforementioned categorizing so that you can quickly and easily fill out your Schedule C at the end of the year and file your taxes.

This way, getting ready for the New Year is as easy as pumpkin pie. Now you can concentrate on redoing your shipping model and revamping your website instead of tackling annoying paperwork!

About the Author:
Laura Messerschmitt is the Vice President of Marketing at Outright, a free online accounting software for small businesses. She loves helping the self-employed and small businesses to be more successful and grow their businesses.