Do you need to make estimated payments? Who needs to make them? When are they due?

April 18 is both the day individual income tax returns for 2016 are due and the due date for the first estimated tax payment for 2017. So, even as you finalize, file, and pay your 2016 federal income taxes, you might need to be thinking about how much you’ll owe for 2017. If you’re required to make estimated payments, missing the deadline could lead to penalties – even if your return shows a refund.

So what are estimated payments? Like the withholding deducted from your wages, estimated payments are prepayments of the tax you expect to owe for the current year. The difference is that you have to calculate the amount due and make the payment yourself, typically four times a year.

How do you know if you’re required to make estimated payments? Generally, you need to prepay at least 90% of the total tax you owe each year. You can do this by having tax withheld on income such as wages, pensions, or IRA distributions. But if you operate your own business, or receive alimony, investment, or other income that’s not subject to withholding, you may need to pay your tax through estimated payments.

There are exceptions to the general 90% rule. For instance, say you anticipate the balance due on your 2016 federal individual income tax return will be less than $1,000 after subtracting withholding and credits. In this case, you can skip the estimated payments and remit the final balance with your return next April.

Other exceptions may also apply, and state laws can differ from federal requirements. In addition, farmers and fishermen are subject to special rules.

If your 2017 income will be substantially higher than it was last year, give us a call. We’ll be happy to review the estimated tax rules with you and help you avoid underpayment penalties.

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.

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Take Steps to Boost your Business Profits

Keeping your company profitable when the economy slows down is a challenge for every business. You may be able to boost your bottom line with the following financial controls.

  • Watch your customer credit. Use an accounts receivable aging report to flag past due accounts. Follow up with a customer immediately when you spot a delinquent bill. Don’t extend any more credit until the customer brings the account up to date.
  • Don’t pay too quickly. Use an accounts payable aging report to keep money in your account as long as possible. Take advantage of early payment discounts if it makes sense. Otherwise consider using the full grace period to pay your bills.
  • Invest surplus funds. Keep most of your money in a business savings or money market account where it will earn interest until you need it.
  • Reserve cash for your short-term needs. Prepare a quarterly cash forecast report so you can anticipate cash shortfalls in time to carefully weigh your financing options. Establish a line of credit before you need it.
  • Reduce inventory. Create a tax deduction and free up valuable shelf space by donating obsolete inventory to your favorite charity. If your inventory includes slow-selling or high-cost items, consider making them special order items.
  • Control your labor expense. Provide adequate training for your employees. Cross-train every employee to do another’s job. Ask your employees to make a list of their assigned tasks. These steps may help you eliminate paying for unnecessary work and create more efficient processes for getting a job done.
  • Resist the temptation to lower prices. Instead, look for ways to improve your product or your customer service to attract new customers and retain the ones you already have.

Please give us a call to discuss these and other profit-boosting ideas for your business.

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Don’t Pay Tax on Nontaxable Income

There are several sources of revenue that are not subject to income tax.

Here are the most common sources of money that are not taxed on your federal income tax return:

  • Borrowed money, such as from banks or personal loans.
  • Money received as a gift or inheritance from family or friends.
  • Money paid on your behalf directly to a school or medical facility.
  •  Most life insurance proceeds.
  • Cash rebates from businesses when you buy an item.
  • Child support payments.
  • Money you receive for sustaining an injury.
  • Scholarships for tuition and books.
  • Disability insurance proceeds from a policy purchased with after-tax dollars.
  • Up to $500,000 of profit for a married couple selling their personal residence.
  • Interest received on municipal bonds.

If you have included any of these as taxable income on your income tax return for the past three years, you can amend your return for a tax refund.

If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.

 

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