Estimated tax is the method used to pay tax on income that is not subject to withholding, including income from self-employment, interest, dividends, alimony, rent, and gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.
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Monday, April 18, 2022, was the tax deadline for most taxpayers to file their tax returns, but if you haven’t filed a 2021 tax return yet, it’s not too late. Here’s what you need to do:
Continue readingMay 1st is the traditional deadline for undergraduate students to commit to their college of choice, which means tuition payments are not far behind. If you’re wondering if your child’s scholarships are taxable, here’s what you should know.
Continue readingTracking the status of a tax refund is easy with the Where’s My Refund? tool. It’s available anytime on IRS.gov or through the IRS2Go App. Where’s My Refund provides a personalized date after the return is processed and a refund is approved. While most tax refunds are issued within 21 days, some may take longer if the return requires additional review.
There are a few reasons a tax refund may take longer such as:
If more information is needed to process a taxpayer’s return, the IRS will contact taxpayers by mail. It is important to note that calling the IRS won’t speed up a tax refund. The information available on Where’s My Refund? is the same information available to IRS phone assistors.
Taxpayers who claimed the earned income tax credit or the additional child tax credit, can expect to get their refund March 1 if:
Fast and easy refund updates
The Where’s My Refund tool provides a personalized date after the return is processed and a refund is approved. Taxpayers can start checking on the status of their return within 24 hours after the IRS acknowledges receipt of an electronically filed return or four weeks after the taxpayer mails a paper return. The tool’s tracker displays progress in three phases:
To use the Where’s My Refund? tool, taxpayers must enter their Social Security number or Individual Taxpayer Identification Number, their filing status, and the exact whole dollar amount of their refund. The IRS updates the tool once a day, usually overnight, so there’s no need to check more often.
Now that tax season is over, it’s time to get the new tax year off to a good start by checking your federal income tax withholding. Taxpayers can do this by using the Tax Withholding Estimator on IRS.gov. Let’s take a look at why using this valuable online tool is a good idea:
The Tax Withholding Estimator helps employees avoid having too much or too little tax withheld from their wages. It is also useful for self-employed individuals who have wage income or estimated tax payments that they need to make to avoid unexpected tax bills when filing their annual returns. Having too little withheld can result in a tax bill or even a penalty at tax time; having too much withheld results in less money in their pocket. In other words, the estimator can be used to help taxpayers get to a balance of zero or a desired refund amount.
The Tax Withholding Estimator also helps taxpayers figure out whether they need to complete a new Form W-4, Employee’s Withholding Allowance Certificate and submit it to their employer or make an additional or estimated tax payment to the IRS.
How it Works
The Tax Withholding Estimator asks taxpayers to estimate:
The online tool does not ask for personally identifiable information, such as a name, Social Security number, address, and bank account numbers. The IRS doesn’t save or record the information entered in the Estimator.
Gather Tax Documents
Before using the Estimator, it can be helpful for taxpayers to gather applicable income documents, including:
These documents are not needed to use the estimator but having them handy will help taxpayers estimate 2022 income and answer other questions asked during the process.
Taxpayers should be aware that the results of the Tax Withholding Estimator will only be as accurate as the information entered by the taxpayer. It should also be noted that individuals with only pension income should not use the Estimator. Those with wage income can account for current or future pension income. People with more complex tax situations, including those who owe alternative minimum tax or certain other taxes and people with long-term capital gains or qualified dividends, are advised to consult with a tax professional.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
On April 30th and May 1st, the twelfth annual JL Challenge: Battle for the Belt was held. This is one of two annual events that support the Jerry Loyola Foundation. The Jerry Loyola Foundation honors the memory of a fine individual and promising young golfer who lost his battle with cancer in October 2009 at the tender age of 24. The foundation’s mission is to provide assistance to families battling cancer and support junior golf. Wheeler Accountants, LLP provides tax preparation services for the foundation and is recognized as a major sponsor.
We were fortunate to once again have excellent weather for the event. Forty-one players participated; nine in the scratch division, twelve in the senior scratch division (players fifty-five years or older), and twenty in the net division. Brant Wilson, PGA Professional and current Director of Golf at Aptos Seascape Golf Course, was the winner of the scratch division with a two day total of five under par 137. Rudy Ortega was the winner of the senior scratch division with a two day total of 159. In the handicapped division, Gerry Lomeli took first with a two day net total of 142.
The major fundraising event for the foundation will take place Saturday, August 27. The Covid pandemic severely affected the operation of this event in 2020 and 2021, and we look forward to having the tournament without the Covid restrictions. It promises to be an event filled with fun and camaraderie, supporting a great cause!
April 18 has come and gone and another year of tax forms and shoeboxes full of receipts is behind us. But what should be done with those documents after your check or refund request is in the mail?
Federal law requires you to maintain copies of your tax returns and supporting documents for three years. This is called the “three-year law” and leads many people to believe they’re safe provided they retain their documents for this period of time.
However, if the IRS believes you have significantly underreported your income (by 25 percent or more), or believes there may be indication of fraud, it may go back six years in an audit. To be safe, use the following guidelines.
Continue readingWhen an individual accepts the position of executor or trustee, they are committing to several responsibilities in the administration of a deceased person’s estate or trust. Among these is the duty to file the necessary tax returns for the year of death and any subsequent years of administration.
Here we will discuss how to manage the filing of the individual’s final income tax return (Form 1040), the trust’s or estate’s Fiduciary Income Tax Return (Form 1041), and the state equivalents.
To understand the best way to file the final 1040, it is useful to picture the calendar tax year on a continuum. The first part of the year consists of the period from January 1 until the date of death. The income that occurs during this period is the income that will be taxable on the final 1040. The income that is earned after the date of death will be reported on the fiduciary tax return. Essentially the trust or estate becomes the taxpayer. All of the income is therefore captured on one of the two returns.
Upon the passing of the individual, the executor or trustee (or CPA or attorney) applies for a Federal tax identification number, also known as an Employer Identification Number (EIN). This number is used for the tax filings as well as retitling assets from the individual’s name and social security number to the name of the estate or trust. The starting date for the first year of tax filings is the decedent’s date of death. The year-end for the first tax return filing is dependent on whether there is an estate or a trust, and whether there is an election to choose calendar year-end or a fiscal year-end.
Because it takes time to acquire the EIN and transfer assets to accounts under the EIN, income will continue to accumulate from some sources under the Social Security number of the decedent. As a result, year-end forms such as brokerage 1099s may include income earned after date of death. To address this issue, the executor or trustee reports all of the income reported under the Social Security number on the decedent’s final individual return. This is important to ensure that the return matches the IRS’ records. The portion of income that was earned after date of death is then shown as a subtraction from the 1040. The estate or trust is shown as the recipient or “nominee”. This post-death income is then reported on the fiduciary return along with any income reported under the estate or trust EIN.
The approach to deductions is similar, but there are differences between the individual and fiduciary returns. The deductions are allocated based on when they were paid, either before or after the date of death. Some deductions such as property taxes and mortgage interest are allowed on both types of returns. Other deductions such as non-cash charitable contributions are only deductible on the individual return. Trusts and estates are allowed deductions for certain expenses that are more limited to the individual. These expenses include accounting fees, legal fees, trustee fees, bonding costs, and administrative expenses.
An executor or trustee is responsible for accounting for all the receipts and disbursements which occur after the date of death. It is advisable for the executor or trustee to set up a separate bank account under the EIN in order to keep a good record of the financial activity. It is possible that beneficiaries will want a formal accounting of the assets, receipts and disbursements. With this record and the year-end tax reporting documents for all of the accounts, the tax returns can be prepared.
For estates and trusts there are two types of distributions. First, there are distributions that were specified in the will or trust. These are referred to as “specific bequests”. This type of distribution is a defined amount of money going to a specific beneficiary, usually an individual or a charity. The payment of a specific bequest has no impact on the fiduciary tax return. The second type of distribution is one that is made to a “residual beneficiary”. The amount this type of beneficiary receives is usually a percentage of the distributable estate or trust. If a distribution is made to a residual beneficiary, some or all of the distributable income on the fiduciary tax return may flow out to the person who received funds. As part of the preparation of the fiduciary return, the accountant prepares a Form K-1 which details the income which is reportable by the beneficiary. In the final year of estate or trust administration, when all of the assets have been distributed, any net taxable income (or excess deductions) will pass out to any beneficiaries that received assets in the final year, and the trust will owe no tax.
In some cases, such as with a probate estate, it may be impossible to make distributions during the first year of administration. If there are no distributions from an estate or trust and there is taxable income on the fiduciary return, the estate or trust must pay tax on that income. It is preferable to distribute assets when possible, because fiduciary income tax rates are very compressed. For 2021 an estate or trust will reach the maximum ordinary income tax rate of 37% at $13,050 of income. Distributions allow taxable income to pass out to the beneficiaries who are more often at a lower tax bracket than the trust.
When an individual accepts the position of executor or trustee, they are agreeing to manage the assets and finances of a decedent. There are many aspects to administration, and the executor must be prepared. In order to file the necessary tax returns, the trustee will have to account for all the receipts and disbursements, gather the year-end tax reporting documents, and allocate the activity between the individual and fiduciary returns. With careful planning and good recordkeeping, the preparation and filing of the final individual returns and the fiduciary returns should go smoothly. The members of the Wheeler Estate and Trust Team are available to assist you through this process. We can provide expertise and experience to executors and trustees as they work their way through the process of estate and trust tax preparation and administration.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
As a reminder, taxpayers have the right to pay only the amount of tax legally due, including interest and penalties. They also have the right to have the IRS apply all tax payments properly. This is one of 10 fundamental rights known collectively as the Taxpayer Bill of Rights.
The Taxpayer Bill of Rights (TBOR) is a cornerstone document highlighting the ten fundamental rights taxpayers have when dealing with the Internal Revenue Service. Every taxpayer needs to be aware of these rights in the event they need to work with the IRS on a personal tax matter.
With this in mind, taxpayers should know six important things about their right to pay no more than the correct tax owed. Here is a summary of what taxpayers can expect:
For general information about taxpayer rights, take a look at IRS Publication 1, Your Rights as a Taxpayer, which includes a full list of taxpayers’ rights. If you have specific questions, don’t hesitate to contact the office. Help is just a phone call away.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
If you’re a small business owner who is just starting out, you may not realize that some rent expenses may be deductible on your tax return. Here are some things small business owners should keep in mind when it comes to deducting rental expenses:
How Rent is Defined
Rent is any amount paid for the use of property that a small business doesn’t own. Typically, rent can be deducted as a business expense when the rent is for property the taxpayer uses for the business.
Lease or Purchase
Unreasonable Rent
Businesses can’t take a rental deduction for unreasonable rents paid. Rent is unreasonable for deduction when it is higher than market value or a professional appraisal.
Office in the Home
A business owner’s workplace can be in their home if they have a home office that qualifies as their principal place of business.
Rent Paid in Advance
Rent paid for a business is usually deductible in the year it is paid.
Canceling a Lease
A business can usually deduct the costs paid to cancel a business lease.
Questions?
If you have any questions about whether rental expenses are tax deductible for your small business, please contact the office.
San Jose: (408) 252-1800
Watsonville: (831) 726-8500
