Y Taxes 101

20140327-080320.jpg

When we think TAXES the first image that appears is Uncle Sam pointing that finger and exclaiming ‘I want YOU!’

There is seemingly less to fear in regards to taxes when we delve into their history and what they mean for Y’s today… in order to support Civil War efforts Congress enacted the United States’ first income tax law. Taxing was a progressive ideal based on withholding income at the source, but very much followed principles similar to modern day income taxation. The Act of 1862 was then known to have established the power to assess, levy, and collect taxes, along with the right to enforce tax laws through the highest extent of the law; the steel hand charged with orchestrating taxation is still known as the Office of Commissioner of Internal Revenue. As time passed and we realized taxation could help our country, the 16th Amendment to the Constitution took a stance in making income taxing permanent for the U.S. tax system in 1913.

So when I wondered what each and every one of Y’s are mulling through as we prepared to commence the tax crunch, I had to know why are we taxed? @TheYLife sat down with Kristin Ceballos from Ceballos, Ceballos, Bestulich & Padron, CPAs… a Miami based professional accounting service firm, who not only has two Y’s at the helm, but is dedicated to helping businesses and individuals succeed financially. Kristen is our Y voice that will break down accounting advising for @TheYLife. First and foremost, Why TAXES?

“That is the million dollar question! The United States has a big budget. We have to pay for things like schools, roads, hospitals, government employees, the military, and so forth. This is where income taxes come into play. The government taxes our income so it can have enough money to pay its bills…”

But, why is it so important that we complete our Taxes by April 15… I needed to hear it, directly from the horses mouth- can we be penalized, face fines and even jail time if we fail to file?

Kristen explains… “April 15, 2014 is the due date for filing your federal individual income tax return for the 2013 calendar year. If you are not able to file your federal income tax return by the due date, you may get an automatic 6-month extension of time to file. To do so, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return by the April 15, 2014. However, an important thing to note is that an extension of time to file is NOT an extension of time to pay. What this means is that if you do not pay the amount due by April 15, 2014, you will owe interest on the unpaid amount. You may also be charged a penalty for paying the tax late unless you have reasonable cause for not paying your tax when due.”

Wow! That was a mouth- full, which led me to begin to wonder if I would be needing a couple of Aspirin before continuing my interview with Kristen! Then, the word I would learn to fear even more than TAX, just slipped from Kristen’s vocabulary in the most subtle fashion… AUDIT!!!!!

My intrigue was officially peaked! How does the IRS red flag certain people for auditing and does this little 5- letter word, which could mean becoming a paper hoarder for the next billion years, with that I asked KP how long I should be keeping my tax records for?

“Unfortunately this is a very gray area. Statistics show that an average of 1% of individual tax returns are actually audited by the Internal Revenue Service. However, it certainly doesn’t mean that everyone is in the clear… In terms of how long someone should keep their tax records for, my theory is the longer the better! The IRS has three years to audit your tax return or to assess any additional tax liabilities. This statute of limitation runs for three years after you file a tax return. If your tax return is due April 15, but you file early, the statute runs exactly three years after the due date. If you file late and do not have an extension, the statute runs three years following your actual (late) filing date. In some special cases the statute is six years.”

Thankfully Padron recognized my deep anxiety beginning to swell and she pointed out the top ten reasons U.S. citizens are red flagged… which could potentially trigger an IRS audit:

1.       Not reporting all of your income

2.       Breaking the rules on foreign accounts and failing to report a foreign bank account

3.       Claiming excessive business expenses

4.       Earning more than $200,000

5.       Taking large charitable deductions

6.       Taking rental losses

7.       Claiming 100% business use of a vehicle

8.       Writing off a loss for a hobby activity

9.       Running a small business

10.   Taking a home office deduction

Not wanting to EVER be that 1%, I wondered what a proper deduction would consist of…

“There are many different factors in determining the proper deductions an individual may claim on their return. Some of the common deductions that many taxpayers can take advantage of claiming on their tax return are: medical expenses, home mortgage interest paid, amounts paid for property taxes, charitable donations, child care expenses, investment interest expense and education expenses.”

Perfection! So far, so good… And then there was this…

“The following expenses are often mistakenly assumed to be deductible; however, they are actually non-deductible… adoption expenses, funeral expenses, fines and penalties, health spa expenses, federal income taxes, estate income taxes, hobby losses, pet fees, lobbying expenses and child support.”

Oh, Phew! I am in the clear! But, I just knew the stress of rushing to get my taxes to my accountant was anything but proper in ‘TAX-TIQUETTE’ so…what is the best way to plan out during the year, to make it easier on yourself during Tax Season? Kristen says, “staying organized throughout the entire year is key! Trying to get everything together at the end of the year can be very overwhelming. Another important piece of advice is to keep records and documents… I can’t stress this enough! This is especially helpful for someone who runs their own business.”

If you need some last minute help… Log onto: Ceballos, Ceballos, Bestulich & Padron