The Main Street Post

PHILADELPHIA PA – Few people look forward to tax season, but those who are concerned that they may owe taxes approach it with particular apprehension. Worry less, experts at the Philadelphia-based Pennsylvania Institute of Certified Public Accountants proclaim; they say options exist for those who need more time to file returns, or who are having trouble paying what they owe.

The Extension
If you don’t have all the information you need to file by the tax deadline, or will be delayed for some other reason, it’s possible to receive an automatic six-month extension for filing your return. That means you will have until October to get your documentation to the IRS. However, the Internal Revenue Service still wants you to pay the taxes you owe by the April 15 deadline, even if you receive the filing extension.

Filing the appropriate forms for an extension does not extend the time to pay taxes. If you do not pay the amount due by the regular due date, you will owe interest and may be subject to penalties. A certified public accountant can help you determine whether an extension is a good step, and what payment amount you may owe in the meantime.

Don’t Fail to Pay
If you just can’t pay the taxes you owe, the IRS may be willing to work with you. It’s important to get in touch with them and discuss your options. Your tax advisor can explain choices to you, and work with you and the IRS to resolve the problem. Be aware that failure to file a return at all will, at a minimum, subject you to penalties. This should never be your course of action.

Payment Options
If you need just a little more time to pay, you can ask the IRS for up to 120 extra days through an Online Payment Agreement available on the IRS site, www.irs.gov. You generally don’t pay a fee for this arrangement, although you will owe penalties and interest for the late payment.

If you need extra time to catch up, you may need an installment agreement. Under the agreement, you make monthly payments of a minimum of $25. Any future refunds for which you qualify will be used to pay off the outstanding debt. There are fees associated with an installment agreement, based on your income level and how the fees are paid. You can avoid the fee if you are able to pay your total outstanding taxes within 120 days.

You will still be expected to file your tax returns on time and pay all future taxes in full and on time. The IRS generally doesn’t take enforcement collection actions if you are applying for an installment agreement or have one.

Get A Fresh Start
The IRS’ expanded Fresh Start initiative is aimed at people who have lost their jobs and are having trouble paying taxes as a result. The program offers a grace period on penalties for some taxpayers who have been unemployed 30 consecutive days or longer. Self-employed people whose business income fell 25 percent or more in 2011 also may qualify.

In addition, the IRS recently began offering more flexible terms to its Offer in Compromise program, with new penalty relief, a widened pool of people eligible to use streamlined installment agreements to pay back taxes, and changed lien practices. Ask a CPA for more details.

If you face challenges in filing your tax return or paying your taxes due, a local CPA may be able to offer advice on pressing financial questions. Find one in Pennsylvania by visiting its website, here.

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PHILADELPHIA PA – If you lost your job during the past year, do you know your tax obligations? The Pennsylvania Institute of Certified Public Accountants (PICPA), based in Philadelphia, offers answers on some common tax questions for those who are out of work.

Is My Severance Package Taxable?

If you received severance pay from your former employer, that pay is considered taxable income. It will be included on your W-2 form, and your employer will withhold taxes on it. Similarly, if your former employer compensates you for the value of accumulated vacation or sick days, or other types of leave, that compensation is also taxable. Even companies that go out of business or declare bankruptcy must report your wages and withholding and send you a W-2 form that shows all your income earned.

Of course, you must pay taxes due on wages you earned before you lost your job. For wages earned in 2011, you should have received a W-2 from your employer by Jan. 31.

Will I Be Taxed on Unemployment Insurance?

Yes, you will have to pay taxes on state unemployment insurance benefits and any extended benefits you collect. You can ask the state to withhold your taxes for you, just as your employer did, so you don’t have a tax bill waiting for you at filing time. If you qualify for public assistance or food stamps, you will not have to pay taxes on those benefits. You do not have to pay state income taxes on unemployment benefits in Pennsylvania.

What If My Family Helps Me Out?

There are special rules that address the taxation of gifts. Generally, each taxpayer is allowed to give another individual up to $13,000 per year without paying taxes on that gift.

What if I Dip into My Retirement Money?

As a general rule, any money you withdraw from your retirement plan or individual retirement account (IRA) will be taxed in the year of the withdrawal if you have not yet reached eligible retirement age (generally age 59-1/2) and don’t roll that money over into another qualified retirement account within 60 days. If you took $10,000 from an IRA in 2011, for example, you’ll have to pay taxes on it when you file this year.

In addition, if you have not yet reached eligible retirement age, you’ll also owe a 10-percent penalty for early withdrawal. CPAs strongly advise against raiding your retirement account. There are hardship exemptions if you’re permanently disabled or have certain medical expenses, so check with your CPA for more information if you believe you qualify. If you want to withdraw any IRA contribution you made in 2011, you can do so without tax or penalty as long as you did not take a deduction for the contribution and you do not withdraw any interest or earnings you made on that contribution.

Are Job Hunting Expenses Deductible?

Yes, you can deduct many types of costs, including résumé preparation and mailing expenses, employment agency fees, related travel outlays, as well as some moving costs if you relocate to start a new job.

What if I Can’t Pay My Taxes?

If you can’t pay your tax bill, get in touch with the IRS immediately and explain your situation. The IRS typically has payment plans available for those who are suffering financial hardship and having a hard time covering their tax bills. You can find more information at 800-829-1040 or online, here. If you continue to have trouble settling your tax problems, contact the Taxpayer Advocate Service at 877-777-4778.

No matter what your financial situation, a local CPA has expertise to cut through the complexity and explain your options in language you can understand. Find a CPA by location or area of expertise, here.

PHILADELPHIA PA – Did you know you are legally responsible for everything on your tax return, even if another person prepared it for you? Did you also know your tax return paints a unique picture of your financial situation that you can use to make smart financial decisions throughout the year? Those are two of many reasons it’s so important to choose tax preparers who really know their stuff.

The Pennsylvania Institute of Certified Public Accountants, with offices in Philadelphia,  outlines some common mistakes in making this choice, and offers helpful solutions.

Mistake 1: Not Asking What “Preparer” Means

Anyone can use the title “tax preparer,” so find out what kind of training and experience the person actually has. You should be aware that even some preparers who are “registered tax preparers” with the Internal Revenue Service (IRS) may have only met certain minimal requirements.

A certified public accountant (CPA), on the other hand, must meet rigorous education standards and pass the demanding Uniform CPA Examination. CPAs are also required to take continuing education throughout their careers to keep their skills sharp and to meet high ethical standards in order to keep their licenses.

Mistake 2: Not Asking About Experience

In choosing preparers, ask how long they have worked with clients in situations like your own and whether they can offer advice on the financial issues that are on your mind.

CPAs have hands-on experience helping a variety of clients understand how to comply with tax laws and minimize their tax outlays. They are familiar with overlooked deductions as well as common mistakes made on returns. You can rely on their expertise to spot challenges and opportunities in your tax filing. Solid experience and training are particularly important if your return will be more complex than average, which could be the case if you are self-employed or if you are dealing with estate issues, a small business, or other complications.

Mistake 3: Not Asking About Fees

To avoid surprises later, find out up front how much preparers will charge. A preparer’s fees may vary based on the complexity of your return and other factors. More experienced preparers may cost a little more but the savings or other financial advice they offer may cover some or all of any added expense.

Keep in mind, too, that you should avoid working with someone whose fee is based on a percentage of your refund or on how much they can save you in taxes. Also ask whether preparers can represent you before the IRS in case your return is audited and what extra charges might be involved if they do.

Mistake 4: Not Reviewing Your Return Once It’s Done

One of the most egregious mistakes you can make is to not review your return. Look it over and make sure you understand it. If you see anything you believe may be incorrect or that doesn’t make sense, contact your preparer and ask questions.

Mistake 5: Setting Your Return Aside and Forgetting About It

Do not ignore your return once it is filed. It is an important financial document. Did you pay too much in taxes last year? Are you taking the right steps to prepare for retirement, a child’s college education, or other long-term goals? Your tax return, which contains vital information about what you earned and how you spent it, can help answer those questions and many more.

If you have more questions about your tax situation or any aspect of your financial life, be sure to consult your local CPA. He or she has the expertise to advise you on all your financial concerns. To find a CPA in Pennsylvania by location or area of expertise, visit www.IneedaCPA.org.

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