Tax professionals advise not to forget that taxes are due April 18 this year.
It’s great that the tax season is extended by three days. Income taxes need to be filed by Monday, April 18 this year because the 15th—the usual date taxes are due—falls on a Saturday.
The reality is some people will wait until the last minute to file—regardless of when the deadline falls.
Michigan Chronicle reached out to two tax professionals for advice for the procrastinating filer and everyone else.
“It’s OK to extend your tax filing,” said Melinda S. Phelps, a certified public accountant (CPA). “If you submit an extension by April 18, you will have until October 15 to complete your return.” Phelps said the extension will give the filer or their CPA extra time to more accurately report the taxes and to make sure that the filer is “taking advantages of all the benefits the filer is eligible for.” That extension only applies to individuals and corporations.
Also, she stated, “With the deadline being next week, most last-minute filers should expect their tax professional to extend and be OK with that.
“Tax filing is not as simple as most thinks.”
Phelps also advised to go for standard deductions instead of itemized deductions at this late date.
“For individuals, the most advantageous deductions are the standard deductions, as opposed to itemized ones—unless you have substantial medical expenses, which are deductible after a 7.5 percent threshold. Since state taxes are capped at $10,000, itemized deductions have become less beneficial.”
Phelps also said that those with IRA retirement accounts can take advantage of retirement contributions credits by contributing to their accounts up to April 18.
According to her, one of the most popular tax credit is the Employee Retention Credit. This is advantageous only for businesses who retained employees during the pandemic up to the 2021 tax year.
“Businesses can take advantage of the credit for prior years if they meet the criteria for eligible employee payroll taxes and the business suffered significant declines in gross receipts,” said Phelps. “This may require amendment of prior years, as the credit has expired for 2022 tax year.”
Also, another popular deduction for small business is for home offices. To qualify, Phelps said, a home office — a room or another separately identifiable space — generally has to be used regularly and exclusively for business purposes. The home office also must be 1) a principal place of business, 2) a place where the business owner meets patients, clients, or customers, 3) a separate unattached structure used in connection with the business, or 4) a space within a residence that is regularly use to store inventory or product samples in connection with the business, if the residence is the only fixed location of the business.
“In this situation, the space doesn’t have to be used exclusively for storage,” she said.
“A person doesn’t necessarily have to spend most of their work hours in the home office for it to meet the principal place of business requirement. A home office can qualify if the business owner uses it for administrative or management activities and it is the only fixed location where the owner conducts those activities.”
Some examples of administrative or management activities include: billing customers, clients, or patients; keeping books and records; ordering supplies; setting up appointments; forwarding orders or writing reports, Phelps told the Michigan Chronicle.
Ashley V. Johnson, CPA and Founding Partner of J&F Advisors, has another piece of counsel for business owners, as most of her clientele are entrepreneurs.
“Business owners should always understand their tax structure and how to pay themselves,” Johnson stated. “One of the most common mistakes I see are the owners of single and multi-member LLCs putting themselves on a W-2. This payment method is not allowed with these business structures, as owners aren’t considered employees of the business. Instead, all the profits are taxed as personal income to the owner(s).
“The only way a W-2 can be issued to the owner(s) is if the LLC elects corporate tax treatment. We’ve had to advise several clients to get their W-2’s amended this tax season for this reason.”
As for individual tax filers, Johnson said “the most significant change” for her clients was with the child tax credit.
“This amount decreased from $3,600 for children under 6 or $3,000 for children under 18, to just $2,000 per child under 17. Another change that affected my clients was the elimination of the $300 cash donation ($600 for married filing jointly) deduction for taxpayers that claimed the standard deduction. For 2022, these cash donations can only be claimed if the filer itemizes deductions.”
Phelps added three more piece of advice to business owners: work with a CPA, outsource bookkeeping, and work with an experienced tax professional.
“When the average business owner attempts to complete their taxes, it costs them about 40 hours in valuable time,” she said. “And even then, chances are, a professional’s help will be needed to ensure the business is getting all the deductions to which it is entitled. So why not start with a pro? After all, tax preparation fees are a tax-deductible business expense.”
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