Recommendations
A) Do Not Mail Checks to the IRS
All payments to the IRS, other than through an approved Tax Software Program, need to be paid via IRS.GOV. Why? Because we are starting to see issues when folks mail checks to the IRS with too many hands touching the check payments. IRS is blaming the USPS and the Banks. USPS is blaming the IRS and the Banks. Banks are blaming the IRS and USPS. Plus thieves are sometimes stealing the checks and using the check info to get into folks bank accounts. For a couple of our clients, it has become a big mess.
Bottom line, going forward it is never ever a good idea to mail checks to the IRS or really anyone these days. Paying via IRS.GOV is VERY easy, just like paying Utilities, Credit Card Payments, and others online.
B) All major Income Sources should have Federal Income Tax Withheld.
I am a firm believer that all major income sources, like your W-2 Income, 1099-R Retirement Income, SSA Retirement Income, Investment Income if substantial, etc. should have Federal Income Tax Withheld.
Too many folks owe the IRS at Tax Time because one or more of their major income sources does not have Federal Income Tax Withheld and/or enough withheld.
Also, if you live and/or work in a State, you should also have State Income Tax Withheld.
C) Set up a separate “Tax Money” Savings Bank Account
I have seen too many times at tax time that self-employed folks that make and/or are supposed to make IRS estimated tax payments are not prepared to pay taxes at tax time and wind up getting behind with the IRS.
I have also seen too many businesses that collect taxes on behalf of the government are not prepared to pay taxes by the due date and wind up getting behind with the government.
For example, when it is time to pay the sales taxes, they would use sales tax money that does not belong to them for their business operations and are not prepared to pay sales taxes when due and ends up getting behind with the government.
D) Manage your Business Finances and Personal Finances in “Separate” Bank Accounts
I have seen too many times where self-employed folks that own a small businesses do not keep their business money and their personal money separate by having separate business and personal bank accounts and separate credit card accounts.
E) Set up a separate “Emergency” Savings Bank Account
Everyone needs to save for an emergency, some folks refer to it as a rainy day, like with what happened during COVID, individuals in case of unexpected job loss, and possible large expenses like medical, home, vehicles, etc. and businesses in case of unexpected loss of key employee(s), customer(s), vendor(s), etc.
F) Have a Qualified and Trained Person Manage and take care of your Accounting and Bookkeeping Records, sometimes referred to “Company’s Books”
Way too many times I have seen where Business Owners without any qualifications, supervision, and/or training, either do their own Company’s Books and/or they have a nonqualified person (spouse, girlfriend, neighbor, buddy, etc.) do their Company’s Books for them. Their theory is that is saves them a few dollars in accounting and bookkeeping costs. From what I sometimes see is that all it does it costs them more in taxes to the IRS and States because of inaccurate Company’s Books. Sometimes thousand of dollars more in taxes. I always want to ask, how does that few hundred dollars savings in accounting and bookkeeping costs look now in compared to the thousands of extra taxes having to be paid? Plus I have seen a two day scheduled IRS Audit get pushed into two or more weeks because of how horrible a Company’s Books were.
G) New married folks ask me all of the time should they file Married Filing Jointly (MFJ) or Married Filing Separately (MFS)
There are a couple of exceptions, but 99% of the time, if you are married as of December 31, 20XX, it is always better to file Married Filing Jointly (MFJ) for 20XX.
Some exceptions are: one person has back child support, has a bankruptcy, has some other type of negative financial history, loan repayment to the government like student loans is based on their income, etc,
We can run a report from our tax software after we prepare your Married Filing Jointly (MFJ) Tax Return to go from “99% sure” to “100% sure” based on your actual facts and numbers.