Tax Season Epilogue: What if I didn’t do my taxes in time?

Tax Season Epilogue: What if I didn’t do my taxes in time?

by | Apr 18, 2025 | Business Tax, Individual Tax

Tax season has once again come and gone (unless you received a tax filing extension). But what if you didn’t get your taxes done in time?

As tax laws understand it, taxpayers have an obligation to file AND pay in a timely manner to avoid any penalties. Put more bluntly, it means filing your tax return AND paying any outstanding tax balance you may owe in full, at the same time. For most taxpayers, the due date is usually the 15th of April of the following year. Partnerships and other entities may have different due dates.

Penalties & Interest

The IRS applies penalties and interest charges to taxpayers who don’t happen to file and pay in a timely manner. Penalties can be charged for various reasons. The list is extensive but here are some common ones:

  • Not filing your return on time
  • Not paying your tax in full (even if you filed your return)
  • Underpayment of a tax you owe
  • Not preparing an accurate return
  • Not making estimated tax payments (for certain taxpayers and business entities)
  • Bounced checks for tax payments
  • Erroneous claims to refunds or tax credits

The cost of the penalty varies on the type of penalty and other factors such as amount due or time. For example, a failure to file penalty starts at 5% of the tax due up to a maximum of 25% of the tax due.

Interest is applied on penalties and the date when it begins varies by the types of penalties applied as well.

Penalty Relief

There are options for taxpayers to lower or even remove any related penalties and interest they may owe for their income tax filing. Relief may be granted so long as reasonable cause can be shown. The IRS will usually send a letter with instructions on how to request relief and sometimes it can be done over the phone.

Additionally, if the balance you may owe is too much to pay at once, you can always request a payment plan from the IRS. However, interest will still accrue on any outstanding balances in a payment plan until paid in full. In some cases, it is better to file a return on time to avoid the failure to file penalty and then request a payment plan.

 

Penalties and interest on something compulsory like taxes is something that no one enjoys. With some planning and insight, individuals and business owners can mitigate the risk of incurring such expenses. A talented team of accountants can help make this concern a rarity or work through any current tax issues. MiklosCPA has helped clients for many years, so we have the knowledge and experience to work through whatever accounting and tax needs clients seek. Interested to know more? Set up an appointment and learn more how we can help your business. Additionally, follow our social media pages for future updates and other “good-to-know” pieces for your business and life.

Fill in your Knowledge GAAP

Fill in your Knowledge GAAP

by | Nov 22, 2024 | Business Tax

Generally Accepted Accounting Principles (GAAP) is a set of accounting standards that are used when preparing financial statements for companies, nonprofits, and other entities. Public companies are mandated to follow GAAP standards, but even small private companies can benefit from GAAP as it may help them work with audits or requesting loans from banks. The Financial Accounting Standards Board (FASB) maintains and codifies GAAP, which is primarily used in USA.

Even if you’re not an accountant, it is worth getting a general idea of the underlying concepts that drive the accounting field. GAAP has 4 basic assumptions, 4 basic principles, and 5 constraints:

Assumptions

  • Business Entity
    • Assumes the business is separate from its owners or other businesses
  • Going Concern
    • Assumes the business will operate indefinitely
  • Monetary Unit Principle
    • Assumes a stable currency is used as the unit on the records, such as the US dollar.
  • Time Period Principle
    • Assumes economic activity can be divided into artificial time periods, such as quarters or months in a year.

Principles

  • Historical Cost Principle
    • Requires companies to account and report assets at cost, rather than fair market value.
  • Revenue Recognition Principle
    • Companies should record revenue when earned, but not when received. This is essential to accrual basis accounting.
  • Matching Principle
    • Expenses must be matched with revenues, as reasonably allowed.
  • Full Disclosure Principle
    • A company should disclose all relevant information that relates to the function of its financial statements. This helps keep investors or other interested parties aware of relevant financial facts of the company.

Constraints

  • Objectivity Principle
    • Company financial statements should be based on objective evidence
  • Materiality Principle
    • The significance of reporting an item should be considered if it may affect the decisions of a reasonable individual.
  • Consistency Principle
    • The company must use the same accounting principles throughout each time period (quarters, months, years, etc.), such as FIFO or LIFO inventory methods.
  • Conservatism Principle
    • The accountants preparing reports must choose the option that yields the most conservative result, e.g. reporting on certain depreciation expenses properly.
  • Cost Constraint
    • The cost of reporting financial info should be less than the benefit derived from that financial info. Essentially, the cost of preparing reports should not cost more than the benefits from having the info.

 

GAAP is the bedrock of accounting practices that all business owners should be mindful of as they grow their business. A good team of accountants can help savvy business owner keep their businesses GAAP-compliant. Owners have trusted us at MiklosCPA for many years to help keep their accounting and tax concerns straight.  Learn how we can help your business and schedule a call! Also, make sure to subscribe to our social media pages for future articles and other good-to-know accounting tidbits.

Tax & Accounting Q & A – Who gets the dependent?

Tax & Accounting Q & A – Who gets the dependent?

by | Dec 13, 2023 | Individual Tax

An old work friend of mine reached out to me recently with a tax question regarding her family situation. The short end of it: she, a single mother, was living with her child, her mother, and grandmother at her grandmother’s home. We’ll call my friend Ann for anonymity’s sake. Ann’s mother is recently retired and living on social security while Ann works a full-time office job while caring for her child. Ann’s grandmother has been long-retired and owns her house free and clear. Ann wanted to know who should claim her grandmother as a dependent for income taxes. As much as I wanted to hit that It Depends button and be done with it, I offered to learn a little more of her situation and give a more thought-out answer. 

Dependents, briefly 

First, let’s take a refresher on claiming dependents. The IRS has specific tests for taxpayers looking to claim dependents that need to be met. Essentially, taxpayers may claim a dependent as a “qualified child” or a “qualified relative.”  

A qualified child generally must be a lineal descendent of the taxpayer, be less than 19 years old (or 24 if a full time student), live with the taxpayer more than half of the year and does not provide more than half of their own support. 

Not meeting these criteria will give the taxpayer the option to claim the dependent as a “qualifying relative”. A qualified relative has similar requirements such as the dependent not providing more than half of their own support and living with the taxpayer for at least more than half of the year. Taxpayers often claim dependent parents and extended family they provide care for as “qualifying relatives” on their income tax returns. However, only one person may claim that qualified dependent. Adult siblings cannot both claim their widowed mother as a dependent on their own income tax returns, for example. Check out our article on dependents for more info. 

Notably, the qualified dependent must not have a gross income that exceeds a certain number each tax year, for 2023 it is $4,700. 

Depending on Dependents 

Going back to my friend Ann and her situation, who should claim the dependent? Reiterating the info above, Ann’s mother is retired and mainly lives on social security. Ann works a full-time office job and her mother and grandmother watch her child while she is at work. Ann and her mother provide support to Grandma and live at Grandma’s home. Ann did not indicate that Grandma supported herself or had any significant source of income that could possibly disqualify her as a qualified dependent. Based on the info I gleaned from my friend, Grandma may be claimed on Ann or Ann’s mother respective income tax returns. But, who would benefit more from claiming Grandma as a dependent? Taking as much as I could into consideration, it seemed Ann would benefit more. Ann would be able to claim two dependents (Grandma and her child) and qualify for a larger deduction, or even claim Head of Household status if she qualified. She may even be able to claim more for tax credits such as the Earned Income Tax Credit. Ann’s mother lives on social security and that is only partially taxed depending on her total income, assuming she had no other income sources. 

Income taxes require personalized advice. Each person may have unique circumstances surrounding their tax situation that requires further analysis and discussion, whether it be for a person who shares a multi-generational home or for a newly-minted business venture. As an accounting & tax firm, MiklosCPA regularly communicates with clients on their anticipated tax and accounting needs so our clients can succeed in their business dreams and ambitions. Learn how we can help you and your business needs by chatting with us. Also, be sure to check us out on our social media pages as we regularly post and share “good-to-know” accounting and tax articles. 

Deduction for Start-up & Organization Expenditures

Deduction for Start-up & Organization Expenditures

by | Nov 3, 2023 | Business Tax, Individual Tax

Starting a business always comes with a flourish of optimism and ambition. Startups have access to assorted tax credits and incentives that may not be available to larger businesses. One notable incentive is a deduction for start-up and organization expenditures that owners can utilize as they set the foundations for their business dreams.

Starting Deduction

Taxpayers are able to deduct up to $5,000 of accumulated start-up expenditures in the tax year that the business begins. To qualify, the expenditures must meet two requirements:

  • A cost that the business could deduct if they paid or incurred it to operate as an active trade or business, in the same field that the business entered into.
  • A cost that a business pays or incurs before the day their business begins.

Startup expenses such as incorporation expenses, advertisements for the opening of the business, and travel necessary to secure distributors, suppliers, or customers, are all qualified to be included in this startup deduction, up to the $5,000 limit. Phase out rules apply of course. The $5,000 limit begins to phase out at $50k of total startup expenses and is entirely phased out once total expenditures exceed $55,000.

Any other startup expenditures not deductible in the year the business started may be evenly amortized over a 180 month (12 year) period beginning from the start date of the business. Additionally, taxpayers may elect to capitalize all startup expenditures and not claim the $5,000 deduction.

The $5,000 deduction is claimed in the “other deductions” line of the taxpayer’s Form 1040 Income tax return. Amortization of the startup expenditures in excess of the $5,000 is claimed on part IV of Form 4562. A requirement to claim the deduction is that the business must be actively in business and not “merely an investment”.

 

A deduction for start-up expenses is just one of many incentives small and emerging business can utilize as they take the steps forward to see their ambitions and business goals come to fruition. Owners focus entirely on doing all that is necessary to get their businesses running in these early stages. Having some additional support, such as a trusted accounting affiliate, during the early stages of the business can help integrate good practices, such as accurate recordkeeping, that can benefit the business as it grows down the road. MiklosCPA has been a trusted accounting affiliate for many small and emerging businesses over the years. Set up a chat with us and learn how we can help your startup or small business. Also, like, follow, and subscribe to our social media pages. We periodically post assorted accounting and other “good-to-know” articles for individuals and businesses.

Some California Sales Tax Exemptions

Some California Sales Tax Exemptions

by | Jul 13, 2023 | Business Tax, Individual Tax

Recently we broadly went over sales & use tax in California and that it applies to categories of tangible personal property that cover almost anything that residents and businesses will encounter in their daily life. There also happen to be several categories of tangible property exempt from sales & use tax, which means those types of goods are nontaxable for sales & use tax, depending on the circumstances.

Tangibly Exempt

California regulations will explicitly define categories of tangible property exempt from sales tax. Often it applies to broad categories of tangible goods but sometimes it can depend on circumstances of those goods such as the temperature (food for purchase) or who the seller or customer may be. Let’s take a look at some notable categories exempt from sales tax:

  • Grocery food items
    Very broad category of food items available at groceries are exempt from sales tax upon purchase. This would include things like bread, fruits, vegetables, frozen food items, candies, and bottled water. However, items you would also typically find at groceries like soda, alcohol, over-the-counter medicine, and hot prepared food to-go are still subject to sales tax.
  • Cold food to go
    On that note, all cold food items sold “to go” are exempt from sales tax. Examples would include deli food items that are not toasted and ice cream sold “to go”. It is why ice cream and deli places typically ask you if you want your cold food “for here” or “to go”. Sales tax applies to food eaten in a restaurant with seating provided, regardless of temperature.
  • Prescription medication
    Next time you pick up prescription medication, check your receipt if sales tax applies. In California, sales tax does not apply to medication prescribed by a doctor’s note. Over-the-counter medicine still has sales tax though.
  • Labor
    Labor costs such as the labor charges to install tires or fix a toilet are exempt from sales tax. However, these labor charges should be separately stated on an invoice, otherwise it may be considered taxable if it is lumped together with taxable goods into a single charge.
  • Sales for resale
    A business purchasing tangible inventory from a vendor for the intention of resale is exempt from sales tax. The business needs a resale certificate for their business records to show proof of intent to resell.

 

  • Sales made to customers outside the state
    A business in California making a sale of tangible property to a customer outside the state is exempt from sales tax. For example, a home based business selling skateboards online sells a skateboard to a customer in Wyoming. California sales tax does not apply because the customer is outside the state.

Businesses based and operating in California should be mindful of the taxability of their sales transactions. Owners know their plates are already full in running their business. Small and emerging business owners have come to rely on us here at MiklosCPA over the years to help with the accounting and tax needs that businesses in all industries may face. With our help, owners can then focus on what is most important, growing their business! Learn more how we can help your business by chatting with us. Also, like, share, and subscribe to our social media pages for more useful tax tidbits and other good-to-know articles.

Skip to content