The following article was sponsored by Windigo Incorporated
Income tax in America is a relatively simple process when your life is relatively simple. If you work the same job in the same state for the entire year, you will likely have just one W2 form that you can enter into a tax software program. Click the button and you are done.
If your life is not “normal” or “simple,” which is often the end result of those who would label themselves as red pill, then navigating the set of tax implications and options available becomes challenging. The following circumstances contain a number of pitfalls and signify when you should look for tax help.
1. You operate an online business
Those that operate online businesses have been able to avoid tax pitfalls for some time, as they are on the edge of a “new economy” and the IRS has had to take time to figure out how to deal with them. That couldn’t last forever, though, and now third-party payment providers like Paypal, Stripe, and American Express report payments to business owners directly to the IRS.
States are also clamoring for their share of sales tax revenue from online retailers by assigning a “nexus of business,” forcing online businesses to pay income tax where they are deemed to reside. If an online business is making more than $30,000 in gross revenue per year, they are on the radar and should consult a tax professional for potential pitfalls, especially one who understands e-commerce and online tools.
What this means: If you own a corporation or a partnership (or LLC sometimes) you need to at least file an extension by March 15, report your gross income, before Paypal or credit card fees, and have those line up with at least the 1099-K. Failure to file a return or extension by March 15 can result in a 25% tax penalty when you do file.
2. You live or have financial interests in another country
Another new law taking effect expands the look of the treasury department to those living abroad. Going by the acronym FATCA, the short story is that foreign countries will be reporting information related to US citizens to the IRS. Foreign earned income exclusion solves most tax issues as long as it is reported properly.
This is also related to FATCA under another acronym: FBAR. FBAR requires those with foreign bank accounts holding an aggregate of more than $10,000 US at any time in another country to report these accounts…to the financial crimes enforcement unit. This one is somewhat tricky as there aren’t any additional taxes due, but there are terrible penalties for not reporting. $10,000 per bank account as a civil penalty for non-willful omission.
What this means: If you have foreign accounts there is a second deadline in June to file the FinCen Report 114, which discloses the foreign bank and property information. This is not the same as your income tax. You must report this every year.
3. You have no health insurance, pay for your own, or have foreign health insurance
New for 2015 is a tax penalty for those who don’t have, or don’t have the right kind, of health insurance. There is no need to worry about this if you have employer health coverage. The penalty for not having health insurance doubles every year from here on out, with this tax filing year being $325. As an added twist, those who are out of the country also must have qualified health insurance or pay the penalty. “Out of the country” in this case means for more than 330 days in a year.
What this means: If you are facing a $325 health care penalty this year, ask or research exemptions that you may qualify for before filing. There are close to 20 specific ways to qualify for them.
4. You have a child
Having a child, if your income is $45,000 or less, or you are self employed, opens up all sorts of doors for tax relief. The holy grail is earned income tax credit, but there are multiple other choices. If you have a child with a “baby mama” she will likely scoop up all of these benefits and you should get advice or an estimate of what these tax benefits may be, in case you have to enter a legal battle. Any tax professional should be able to advise on this.
What this means: If there is a dispute you and the baby’s mother as to who can claim, know this: File your return first! The person who files first will have their return accepted while the second parent has their return rejected and must file a claim with the IRS…which is not fast to resolve.
5. You get divorced
Unforeseen tax impacts of divorce are like salt in the wound of the financial devastation that can come along with it. Your pocketbook can take severe tax penalty hits if you have to split a retirement fund, sell or buy a house, or otherwise exchange property with a spouse after divorce. Furthermore, he who was the children also gets the tax breaks.
Not scary enough? The IRS gets many of their leads for audits and fraud investigations from disgruntled divorcées, where the wife will report the husband for tax fraud for leverage, innocent spouse protection, and even a share of the tax collected as an informant reward.
You should be armed with the tax numbers before you agree to anything in a divorce.
What this means: If you are getting divorced, consult a tax expert in addition to a lawyer before signing anything. Otherwise, you may have to pay a 20% tax penalty on split items like retirement funds, or could get penalized for back taxes if your ex informs on you.
A Convenient Solution
If you think you need tax help but are wary of the costs, it’s less expensive than you think. A consultation to get advice on your specific situation can be had for less than $100, and paying to have someone else file your taxes can be done for between $600 and $1800 dollars depending on the complexity of the situation. Our prices are 1/3 the average tax penalty for a late or inaccurately filed tax return.
When seeking tax assistance it’s important to find someone that you can trust, that understands your situation and has credentials to help you. At Windigo Incorporated you work with the principal of the business, who is enrolled to practice before the IRS and has personal experience with online businesses, foreign income, and divorce. Click here to browse our services and get your low-cost estimate today.