984,000 Could Lose their Tax Refund


Last week the IRS announced it is holding $917 million in unclaimed refunds for the 2009 tax year. If the claims for these unpaid refunds are not made by April 15th the refunds will no longer be available. Here is what you need to know:

  1. Timely filing. To receive the refund your 2009 tax return must be properly addressed, mailed, and postmarked by April 15th. It is best to send this certified mail in case there is a dispute with the filing of the return. To play it safe, it is also best to plan for the IRS to receive the return prior to April 15th.
  2. Haven’t filed a tax return? There is no penalty for filing a late return that qualifies for a refund.
  3. There may be delays. If you have not filed a 2010 or 2011 tax return, your refund may be granted, but delayed until the other tax returns are filed. In addition, the refund may be used to pay for any unpaid tax obligations.
  4. It will be tough. Remember all of the country is busy preparing 2012 tax returns, so getting help can be a challenge.

If this impacts you, act now. If you fail to file a tax return, the government can collect any taxes owed long after three years. However, if the government owes you money, you only have three years from the original tax filing due date to collect it. There are no exceptions to this time limit.

So You’re Thinking about Starting a Business? Tax complexities can be confusing


Creating and running a small business in America can be a lot of hard work. It can also be rewarding. Unfortunately, doing the tax part of this correctly can be a real head-ache. Here are some tips.

Other reporting may be required depending on your type of business and your state and local requirements.

  1. Start-up expenses. Keep track of expenses prior to starting your business. Even without revenue, these costs can be deducted using the IRS start-up rules.
  2. Register your business. This includes setting up a legal business entity (sole- proprietor, S-Corp, C-Corp, LLC or Partnership), filing for permits at the state level, filing for an EIN (employer identification number) at the federal level and any business entity registrations required at the federal level.
  3. Keep separate accounts. One of the biggest mistakes made by budding new businesses is combining personal with business expenses. The IRS is quick to make all expenses personal, non-deductible expenses when this happens. Having a separate checking account and a credit card for your business are good ideas.
  4. Ordinary and necessary. These two words are key terms in determining if your expenses are deductible as business expenses for tax purposes.
    • Ordinary: An ordinary expense is one that is common and accepted in your trade or business.
    • Necessary: A necessary expense is one that is helpful and appropriate for your trade or business.
  5. Know the additional filings required. Here are some of the key ongoing requirements:
    • annual business filing
    • payroll reports (monthly, quarterly, annually)
    • monthly sales tax filings
    • payroll tax deposits
    • unemployment filings
    • workman’s compensation filings
    • quarterly estimated tax filings (as appropriate)
    • annual tax returns and information returns (W-2s and 1099s)
    • applicable business licenses/permits
  6. Create a calendar. Create a calendar to help you remember important filing dates. Online calendars with automatic reminders will help make the complexity of reporting easier to manage.
  7. Ask for help. You should focus on developing and growing your business. The hassle of keeping track of the paperwork and required filings is something that proper assistance can make easier.

The IRS understands the regulations on small businesses are complex and confusing. In their effort to help, they have created a set of resources. They can be found at: IRS small business resource center

Don’t Die Here Estate tax surprises at state level


Recently passed federal legislation increased the exemption amount before your estate pays taxes on your assets when you die. The amount for 2013 is $5.25 million. This makes most of our estates tax-free when we die. Or does it?

Where you live could cost you a bundle in inheritance and estate taxies since 21 states have some form of estate taxes, inheritance taxes, or both. To make matters worse, this state tax landscape is constantly changing making it tough to stay current. Here is useful information on which states want a cut of your money when someone passes away.

8 states currently tax your inheritance. The following states charge inheritance tax: Iowa, Nebraska, Indiana, Pennsylvania, Kentucky, New Jersey, Tennessee, and Maryland. The tax rate can be as high as 20% and start with inheritance as low as $1 if you are unlucky to inherit money and live in Pennsylvania or Iowa.

Some states have estate taxes starting at lower amounts than the federal $5.25 million. Noted here are these states’ estate tax exemption amount and their maximum estate tax rate (in parentheses).

CT: $2 mil. (12%)
IL: $4 mil. (16%)
MA: $1 mil. (16%)
MD: $1 mil. (16%)
ME: $2 mil. (12%)
MN: $1 mil. (16%)
NJ: $675,000 (16%)
NY: $1 mil. (16%)
OR: $1 mil. (16%)
RI: $910,725 (16%)
VT: $2.75 mil. (16%)
WA: $2 mil. (19%)
DC: $1 mil. (16%)

Some states match the federal exemption amount. These states match the current federal estate tax exemption, but charge their own estate tax as well.

DE: 5.25 mil. (16%)
HI: $5.25 mil (16%)
NC: $5.25 mil (16%)

Two states charge both. New Jersey and Maryland currently charge both an estate tax and an inheritance tax.

What can you do?

  1. Understand inheritance consequences. If you have a relatives mentioned in your will that live in Iowa, Nebraska, Indiana, Pennsylvania, Kentucky, New Jersey, Tennessee or Maryland, you may wish to conduct some planning activities.
  2. Move before it is too late. 29 states have no estate taxes (or inheritance tax). Many of them (Florida, Texas, Alaska, South Dakota, Nevada, and Wyoming) also have no state income taxes. But prior to packing your bags, review other tax implications within your target “move to” state.
  3. Set up a trust. If you live in one of the states with estate taxes, consider setting up appropriate trusts to help protect your assets from the state tax man.
  4. Gifts? Remember you can also use gifts as a means of transferring some of your assets tax-free. Just make sure you understand the limits on tax-free gift giving.
  5. Want more information? Visit each state’s respective web site and review their estate and inheritance laws.

Do You Need to Pay Employment Taxes?


If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax, or both. Refer to this table for details:

If you… Then you need to…
Will pay cash wages of $1,800 or more in 2013 to any one household employee.Do not count wages you pay to:

  • your spouse,
  • your child under age 21,
  • your parent, or
  • any employee under age 18 during 2012.
Withhold and pay Social Security and Medicare taxes.

  • The combined taxes are generally 15.3% of cash wages.
  • Your employee’s share is 7.65%.

(You can choose to pay the employee’s share yourself and not withhold it.)

  • Your share is 7.65%.
Have paid or will pay total cash wages of $1,000 or more in any calendar quarter of 2012 or 2013 to household employees.Do not count wages you pay to:

  • your spouse,
  • your child under age 21, or
  • your parent.
Pay federal unemployment tax.

  • The tax is 0.6% of cash wages.
  • Wages over $7,000 a year per employee are not taxed.
  • You also may owe state unemployment tax.

If neither of these two contingencies applies, you do not need to pay any federal unemployment taxes. But you may still need to pay state unemployment taxes. (See below for more on this.)

If neither of these two contingencies applies, you do not need to pay any federal unemployment taxes. But you may still need to pay state unemployment taxes. (See below for more on this.)

You do not need to withhold federal income tax from your household employee’s wages. But if your employee asks you to withhold it, you can choose to do so

Tip: If your household employee cares for your dependent who is under age 13 or your spouse or dependent who is not capable of self care, so that you can work, you may be able to take an income tax credit of up to 35% (or $1,050) of your expenses for each qualifying dependent. If you can take the credit, then you can include your share of the federal and state employment taxes you pay, as well as the employee’s wages, in your qualifying expenses.