I hope your 2013 holiday season was a good one, and I also hope you rang in the 2014 New Year on a pleasant note.
As a CPA, once the calendar turned to January 1, 2014, I became a 2013 tax historian. The book on the 2013 tax year has been closed, and all that is left is to prepare the epilogue, co-sign the final paperwork with my co-creators (you, the taxpayer), and send said paperwork to the Internal Revenue Service and various state and local taxing authorities. You provide me your 2013 tax related history, and I reveal your tax fate. Sometimes you’ll give me big handshakes and happy telephone calls or emails thanking me for providing funding to your bank. Other times I may have to hold the phone away from my ear while you tell me it’s my fault, or listen to sad stories of financial difficulties and how this “bill” you have to pay really hurts. Sure, you can set up a payment plan and spread out your grief or pay it all at once, but either way you pay the piper.
Having a book of clients makes it difficult to get in touch with everybody to do tax planning. I wish more clients would call me requesting tax planning, because to me it means you understand the importance of taxes – cash flow. All year you’ve paid into your tax escrow account with tax withholdings from your paycheck or payment of your estimated taxes. The epilogue (Form 1040) is nothing more than a mathematical guide to a final balance, and then it’s compared to your escrow account to see if you have to pay more or get some of your money back. The problem now is there is very little I can do to change the history. I can only ask questions to make sure you’ve given me every piece of information, most importantly tax deductions to offset your taxable income.
Your tax information will be coming shortly. By law, you are supposed to have your W-2’s and 1099’s by January 31st. If you have any interests in partnerships, S-Corps, or Trusts, you may receive your K-1’s on time. If those entities filed for an extension, they have until the fall to provide you their piece of your tax puzzle. That just means you have to file an extension (by April 15th), but you cannot extend payment of your final balance due. You have to estimate your tax liability, and hopefully pay in enough money to cover the liability. Once you file your extended return (by October 15th), if you still owe any money, your extension becomes invalid and you will be charged late payment penalty and interest accruing from April 15th.
You should be concentrating on collecting tax information you will not automatically receive in the mail. If applicable, this includes rental income & expenses, capital gains and losses (stock sales, rental property sales), self-employed income and expenses, and itemized deductions (including real estate taxes, mortgage interest, casualty losses, medical expenses, personal property taxes, contributions). You may also have dependent care expenses, tuition, or student loans. The sooner your information gets into the hands of your CPA, the quicker you will know your fate. Those who usually know they are receiving a refund rush to get their information in because they want the money. Frequently, those who know they owe wait until late March/early April to get their information in. Usually by that time, we are so backed up that we may have to file an extension. Plus, you may only have a day or two to gather up funds to pay the balance. Even if you think you owe, get your information in early and bug your CPA for at a minimum an estimate. Give yourself more time to plan for the balance due. You still don’t have to pay until April 15th, but at least you can plan better.
The holiday season is over, and except for a few holidays between now and April 15th, you are entering tax season. Welcome to my world.