Archive for January, 2012|Monthly archive page

Tax Organizers

Originally published in the Pacific Grove Hometown Bulletin

January 18, 2012

The use of a tax organizer is a great way to prepare for your income tax return when working with tax professionals.  All things considered, it allows the professional to spend more time on important issues, and typically results in a more accurate and less expensive return.

An organizer is essentially a document that prompts you for the vast majority of standard information a tax professional would need to work on your returns in an order that is logical and efficient for the professional.  Organizers often contain questionnaires that alert the professional to potential reportable transactions or areas that may need additional planning or questions.  It also allows the individual to convey preferences about refunds, the use of estimates, future expectations or anything else that seems appropriate.  If you want to get a gold star, sort your supporting tax documents in the same order as the organizer!

Some people think filling out an organizer is a waste of their time because that is what they are paying someone else to do.  The “shoe-box” approach is where all documents are thrown in a box and the professional is supposed to grind out a return.  This is possible, but the reality of the situation is that you will probably end up with either an inferior result or a lot of questions and a large bill.  I have done returns like these over the years – in some cases opening all the client’s mail for the first time including bank statements, bills, and even birthday cards from grandma with a check enclosed!

Better than the “shoe-box” approach is your own ordered approach.  My father was an architect and he had his own business.  I remember the zippered bags he used for sorting tax documents and his all-important summary sheets where he proceeded to add every expense in two-point hand-written font on yellow notebook paper that only he could fully understand (but of which he was quite proud)!  Of course, his CPA – Dan, had to learn parts of it as well.  I can assure you that Dan would have preferred my father use his firm organizer instead, and he probably would have charged my dad less for preparation as a result!

Using a firm provided organizer allows the professional to move quickly through the low value process of data collection and entry and think more about high-impact planning or additional deductions.  The first year you fill out an organizer for a professional, it will typically be more voluminous with many non-applicable pages.  In future years it will often be tailored to you and provide your prior year information for easy comparison – and it helps you know what you may be missing.

In any case, tax organizers are a great tool to help you stay organized from year-to-year.  If you have never used an organizer, you can download one for free from my website at www.tlongcpa.com/forms.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

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Do You Know if You Need to File a 1099-Misc by January 31st?

Originally Published in the Pacific Grove Hometown Bulletin

January 4, 2012

Happy New Year!   Now that the holidays are over and you are starting those New Year’s Resolutions, perhaps you should add one more to the mix – reviewing whether or not you need to file 1099s.  Penalties have doubled this year, and if you paid a non-employee over $600 in the course of your business during 2011, you likely need to file a 1099-Misc by the end of this month.

Penalties

Due to the strain of the economy, pressure is being put on taxing authorities to collect revenue wherever they can.  One way of collecting this revenue is through penalties for failure to comply with regulations.  This year we are witnessing increasing penalties, the creation of new penalties, and the enforcement of old penalties not previously enforced.  The filing of 1099s is no exception and is a large target because it also helps the taxing authorities identify people who fail to report income (and pay tax) of their own volition.  You may think, “I have never done this before,” but given the increased enforcement, this is a hollow reason for not reconsidering your position.

The federal penalties have doubled this year to $100 per 1099 for failure to provide a 1099 to a recipient, and another $100 for failure to file a copy with the IRS (I am sure you will find it a relief to know that the combined penalties are capped at $3 million for most of us!).  California has matching penalties of $50 each and they can also disallow the deduction for the amount you paid the person in question.

Who Gets 1099-Misc Forms

Generally, 1099-Misc forms are filed for service-providers that your business (sole proprietorship, nonprofit, or other business entity) pays to someone other than a corporation over $600 during a year.  There are many exceptions and reading through the instructions for form 1099-Misc (available online) is a great way to find out if you have filing requirements.  Exceptions include payments to attorneys, medical service providers, royalties, fish payments, direct sellers, and many more.  Just because you have a CPA or someone else prepare your taxes does not mean they know all the people for which you need to file 1099s.

When to File

Form 1099-Misc is required to be mailed to recipients by January 31st.  You also have to file a copy with the IRS by February 29th.  Copies mailed to the IRS have to be filed on specific forms printed in red ink, unless they are electronically filed by professionals or other online service providers.  The printed forms and software can be found at your local office supply store.

If you need additional help with a 1099 filing determination or with actually filing the 1099s this year, you should seek professional help as soon as possible.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.