The 2019 Illinois Tax Amnesty Program

Do you owe unpaid taxes to the State of Illinois? Well, we have good news for you. If you file any of those unfiled returns AND pay the liability owed, the State will FORGIVE any associated penalties and interest!

So what should you know about the program? Read on.

What tax liabilities and periods are eligible for the 2019 Illinois Tax Amnesty program?
Eligible liabilities are taxes due from periods ending after June 30, 2011, and prior to July 1, 2018.

What is the benefit of participating in the amnesty program?
If an eligible tax liability is paid in full between October 1, 2019, and November 15, 2019, eligible penalties and interest will be waived.

How do you participate?
If you have an existing tax liability, simply make full payments of your eligible tax liability between October 1, 2019, and November 15, 2019. If you failed to file a tax return or incorrectly reported the liability due on a previously filed return for these tax periods, now is the time to file the returns, make corrections, and pay the tax. You must file an original return for non-filed periods or file an amended return to make corrections.

What if you owe only penalty and interest?
If you owe only penalty and interest, you do not qualify for the amnesty program.

How do you ensure your payment is applied to the correct tax period?
The Illinois Department of Revenue encourages taxpayers to make separate payments for each tax liability they’re paying. However, if a taxpayer chooses to make one combined payment, they must clearly identify each eligible tax liability being paid by tax type, tax period, and amount. If they do not specify where the payment should be directed, their payment may be applied according to IDOR’s usual regulations and procedures, which may result in the payment being applied to periods that are not eligible for amnesty.

How do you make payment?
A taxpayer can make their payment via mail, check, in person or via My Tax Illinois. To read all the details on how to send payment, as well as get complete details about the program, visit this post on the IDOR website.

What if my liability has been referred to a collection agency??
If your account has been referred to a private collection agency, do not make your payment directly to IDOR. You must make your payment through the private collection agency. Contact the collection agency for your total amount of eligible amnesty debt or follow the directions you receive on the amnesty letter sent to you by the private collection agency.

50 Commonly Missed Tax Deductions

When it comes to keeping your money out of the hands of Uncle Sam, things can sometimes be a little challenging.  Did you remember to deduct those charitable contributions that you had taken out directly via payroll deduction at work?  What about your union dues?  The list goes on and on.

Someone once said “that which is not measured, cannot be improved.”  Well, in the tax world we like to say, “that  which is not tracked, cannot be deducted!”  If you make it a habit to just throw things in your “tax file” throughout the year, you can rest assured that you won’t forget it come tax time.  We can’t tell you how many people come to us at the end of the year with their tax support in folders, logs, envelopes, boxes, garbage bags, cereal boxes…we think you get the point.

So if you are filing a tax return for this year or a prior year, take a look at the commonly missed deductions outlined below.  To make things easy, we’ve even grouped them by category and indicated where they are deducted on the return.

Medical Deductions (Schedule A)

  • Medical transportation expenses such as tolls, parking, and mileage for trips to health facilities, doctor’s offices, laboratories, etc.
  • Hospital fees for services such as nursing, physical therapy, lab tests, and x-rays
  • Nursing home expenses related to medical care
  • Medical aids such as canes, crutches, canes, orthopedic shoes, etc.
  • Hearing aids, eye glasses, and contact lenses
  • Equipment for disabled or handicapped individuals
  • Portion of retirement home fee that is related to life-care fee designated for medical care
  • The cost of alcohol and drug abuse programs, and certain smoking-cessation treatments
  • Wages and amounts paid for in home nursing services
  • Seeing-eye dogs for the handicapped

Work/Job Deductions (Schedule A)

  • Education expenses paid to maintain or improve job skills
  • Professional journals, magazines, and newspapers that are job-related
  • Required uniforms and work clothes not suitable for street wear
  • Union dues
  • Home office expenses, if for your primary place of business
  • Job-seeking expenses within your present field of employment
  • Dues to professional organizations
  • Business gifts up to $25 per customer or client
  • Business expenses including travel, meals, lodging, and entertainment not reimbursed by your employer
  • Cleaning and laundering services while traveling for business
  • Tools for use at your job
  • Cellular phones required for business

Home Related Deductions (Schedule A)

  • Commission to brokers or agents for the sale of property
  • Mortgage or loan interest paid on a second home (e.g. summer home, time share, boat, RV, etc.)
  • Property taxes paid on all buildings and parcels of land owned
  • Personal property taxes on cars, boats, etc.
  • Mortgage insurance premiums
  • General casualty and theft losses in excess of $100 and totaling more than 10% of adjusted gross income

Rental Property Related Deductions (Schedule E)

  • Property management fees
  • Hazard insurance
  • Interest paid to third parties (e.g. private investors, private businesses, crowdfunding platforms, etc.)
  • Operating expense carryovers
  • Suspended passive activity losses
  • Office expenses
  • Other expenses such as postage, bank fees, education, HOA fees, subscriptions, cost of books, meals and entertainment, and gifts to clients or tenants.

Miscellaneous Deductions
Deducted on Schedule A

  • Taxes paid to the state for a balance associated with last years tax return
  • Sales taxes paid in connection with large purchases (e.g. cars, boats, etc)
  • Out of pocket charitable contributions (cash and goods)
  • Cost of safe deposit box used for investments
  • Investment and brokerage fees
  • Fees for tax preparation or advice
  • Legal fees associated with settlements, tax advice or to collect taxable alimony or Social Security
  • Hobby expenses to the extent of hobby income you included in gross income

Deducted on Schedule D

  • Worthless stock or securities

Deducted on the face of Form 1040

  • Student loan interest
  • Half of the self-employment tax paid if you report income on Schedule C
  • Self-employed health insurance premiums if you report income on Schedule C
  • Moving expenses
  • Child care expenses paid to allow you to go to work (e.g. day care, babysitter, summer camp)
  • Educator expenses (i.e. out-of-pocket expenses associated with a teacher’s classroom or school)

How Do I File a Deceased Person’s Tax Return?

When a loved one or spouse passes away, your immediate attention is usually directed towards dealing with putting them to rest.  But once that is done and the task of dealing with the person’s affairs begins, an important question typically arises; what do we do about their taxes?  This post will walk you through the process of filing the needed tax returns as well as outline some additional considerations.

Who Must File (Filing Requirements)?
Generally speaking, whether a person has to file a tax return or not is determined by their gross income, age and filing status. However, when a person has passed away, it is generally a good idea to file a tax return even if there is no obligation to do so. Why you may ask? Because this serves as notice to the IRS and other government agencies that this person is no longer alive. This aids them in closing that person’s SSN account so that someone doesn’t fraudulently use it. It also helps other agencies begin the process of notifying beneficiaries of assets that the deceased had or was entitled to (e.g. survivor benefits).

Personal Representative
So who’s job is it to file the last return for a person who has passed away?  Simple, the personal representative!  The personal representative is generally defined as one of either two people; an executor or an administrator.  An executor is named in a decedent’s will to administer the estate and distribute properties as the decedent has directed.  An administrator is usually appointed by the court if no will exists, if no executor was named in the will, or if the executor cannot (or will not) serve.  In general, an executor and an administrator perform the same duties and have the same responsibilities.

After the court has approved the personal representative, you should obtain an employer identification number (EIN) for the estate.  Next, you use Form 56 – Notice Concerning Fiduciary Relationship to notify the Internal Revenue Service that you have been appointed executor of the estate.

Final Return
So once the personal representative has been appointed, one can then move on to filing the actual return.  The first thing to consider is if this is the “final” return or just an interim one.  For example, if a person died on March 24, 2017, but had not yet filed their tax year (TY) 2016 return (i.e. the one due April 15th 2017), then the TY2016 return is not the “final” one.  The TY2017 return that is due April 15th, 2018 is the final return.  From there, one then needs to follow the process listed below for the final return:

  • Name & Address – Write the word “DECEASED,” the decedent’s name, and the date of death across the top of the tax return.  If a joint return is being filed, write the name and address of the decedent and the surviving spouse in the name and address fields.  If a joint return isn’t being filed, write the decedent’s name in the name field and the personal representative’s name and address in the address field.
  • Income To Include – The decedent’s income shown on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. The method of accounting used by the decedent before death also determines the income included on the final return (i.e. cash basis vs. accrual basis).  The income earned (if any) after the date of death is reported on the tax return of the person’s estate (Form 1041)
  • Third Party Designee – You can check the “Yes” box in the Third Party Designee area on page 2 of Form 1040 to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return.
  • Signature – If a personal representative has been appointed, that person must sign the return. If it is a joint return, the surviving spouse must also sign it. If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse.” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent’s property must file and sign the return as “personal representative.”

Request For Refund
If the decedent was owed a refund for the return in question, just how does one go about requesting it?  Well, the personal representative would file Form 1310 – Statement of Person Claiming Refund Due a Deceased Taxpayer.  Just keep in mind that  Form 1310 doesn’t need to be filed if you are claiming a refund and you are:

  • A surviving spouse filing an original or amended joint return with the decedent
  • A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return

Additional Things To Keep In Mind

  • A surviving spouse, under certain circumstances, may have to file the returns for the decedent (i.e. if a joint return is being filed).
  • When filing the decedent’s final income tax return, don’t attach the death certificate or other proof of death to the final return.  Instead, keep it for your records and provide it only if requested
  • Generally, deductions for a decedent are handled the same way as for living individuals (i.e. itemized or standard deduction)
  • Similar to the above bullet, the same goes for credits
  • A final can return can be electronically filed by a surviving spouse or the personal representative
  • IRS Publication 559 has additional information should you need further information or assistance

Time Expiring to Claim Refunds for 2012 Tax Returns

Deadline to Claim Your Refund
If you did not file a tax return for 2012, you may be one of over 1,000,000 taxpayers who may be due a refund from that year.  The deadline for you to claim a refund, on a tax return in which one was owed to you, is 3 years from its due date (excluding extensions).  For example, if you were due a refund on your 2012 Income Tax Return (which was due April 15th 2013), you have until April 15th 2016 to claim it.  If you don’t file a claim for a refund within three years, the money becomes property of the U.S. Treasury.

Note, there are no interest and penalties for failing to file a return in which a refund was owed.  However, if you have a balance due, those items can be pretty stiff as outlined in this post.

Here are some of the facts you need to know about 2012 unclaimed refunds:

  • The unclaimed refunds apply to those who didn’t file a federal income tax return for 2012.
  • Some people, such as students, part-time workers or seasonal employees may not have filed because they thought they had too little income to require filing a tax return. However, if you did not have a filing requirement, you may still have a refund waiting if you had taxes withheld from your wages.  A refund could also apply if a taxpayer qualified for certain tax credits, such as the Earned Income Tax Credit.
  • The law requires that you properly address, mail and postmark your tax return by April 15th 2016  to claim your refund.
  • The IRS may hold your 2012 refund if you have not filed tax returns for 2013 and 2014. The U.S. Treasury will apply the refund to any federal or state tax you owe. It also may use your refund to offset unpaid child support or past due federal debts such as student loans.
  • If you’re missing Forms W-2, 1098, 1099 or 5498 for 2012, you should ask for copies from your employer, bank or other payer. If you can’t get copies, get a free transcript showing that information by going to IRS.gov. You can also file Form 4506-T to get a transcript.

Need help filing that 2012 tax return?  Give us a call or visit the main page of our site.  We have the software to file tax returns going all the way back to 2004 so we’re sure we can help you out with 2012!

Top IRS Audit Red Flags

Every taxpayer dreads when they receive an envelope with those three bold letters on it; IRS. The situation gets worse when you find out that you’ve been selected for “examination” as the service likes to term it (i.e. audit). Have you ever wondered why some tax returns are selected for further review while most are ignored? For example, in 2013 (FY 2014 is the most recently available data) there were 145.2 million individual tax returns filed, of which 1.2 million were selected for review in 2014. Thus the effective audit rate was 0.86%. So the odds are pretty low that your return will be picked for review. However, those odds may change depending on if IRS computers detect any of the following “red flags” when your return passes their always watchful eyes.

Failing to Report All Taxable Income
All those 1099s and W-2s you receive; well the IRS gets copies of them as well. The IRS computers are pretty good at matching the numbers on the forms with the income shown on your return. A mismatch (e.g. too little or too much being reported) sends up a red flag. If it’s a computational error, the IRS will usually fix it and send you a letter with the changes and additional tax owed. If it’s a reporting error (meaning it was reported under your SSN but it didn’t belong to you), then you will want to contact the IRS/issuer so that it can be corrected.

Running a Small Business
Those who operate their small business as a “sole-proprietor” will report their activity on Schedule C. This form tends to be a treasure trove of tax deductions for sole-proprietors and a gold mine for IRS agents. Why? Well those at the service know that those filing the form sometimes claim excessive deductions or don’t report all of their income. Special scrutiny is typically given to cash-intensive businesses (taxis, car washes, bars, hair salons, barbers, etc.) and those who report substantial losses. Also, the audit rates increase depending on how much they earn. According to the FY2014 statistics, those businesses with gross receipts of $25,000 or less were audited at a rate of 1.01% while those with receipts between $100,000 and $200,000 saw that rate raises to 2.43%.

Claiming the Home Office Deduction
The IRS is drawn to returns that claim home office write-offs because it has historically been successful in reducing the deduction. Why? Well, if you have an office in your home, it has to be used “exclusively” for business in order to be claimed on the return. So if you have a 2nd bedroom that is used as the office, chances are you’ll survive the review. If it’s a family room or den? Good luck convincing the agent that its use is exclusive. However, if you do qualify for the deduction, know that you can deduct a percentage of your mortgage interest/rent, real estate taxes, utilities, phone bills, insurance and other costs.

Claiming the Earned Income Credit (EITC)
The Earned Income Credit (EITC or EIC) is a refundable tax credit for low-to moderate-income working individuals and couples; particularly those with children. The amount of EITC benefit depends on a recipient’s income and number of children. However, the EIC is also a great source of fraud. Why? Well, tax preparers and certain individuals know that there is a “sweet spot” in calculating the credit. If you get the income and dependents just right, you can receive a much larger credit that you are entitled to. Unfortunately, the IRS knows this but has been little combat the fraud. “The IRS estimates that 22 to 26 percent of EITC payments were issued improperly in Fiscal Year 2013. The dollar value of these improper payments was estimated to be between $13.3 billion and $15.6 billion.” So above we said that businesses with gross receipts of $25,000 or less were audited at a rate of 1.01%. Well that rate was 1.78% if the EIC was involved as manipulating the “earned income” on the Schedule C can change the EIC amount.

Being a High Wage Earner
The 0.86% audit rate translates into about one in every 116 returns being selected for review. For people with incomes of $200,000 or higher the audit rates changes to 1.75%, or one in every 57 returns. Report $1 million or more of income? There’s a one-in-16 chance your return will be audited. Make less than $100,000? Only 0.52% of such returns were audited during 2014 or one out of every 192.

Claiming Rental Losses
If you actively participate in the renting of your property, you can deduct up to $25,000 of loss against your other income. A second exception applies to real estate professionals who spend more than 50% of their working hours and 750 or more hours each year materially participating in real estate as developers, brokers, landlords or the like. The problem is 1) some taxpayers claim the $25,000 deduction when they shouldn’t (i.e. multiunit dwellings in which they occupy a unit) and 2) they fail to satisfy the test of being a real estate professional. Thus, those with rental losses are prime candidates for the IRS to take a second look at.

Taking Higher-than-Average Deductions
If deductions on your return are disproportionately large compared with your income or profession, the IRS may pull your return for review. For example, if you are self-employed as an attorney and 35% of your gross receipts on Schedule C are spent on meals and entertainment, the computer may flag the return when the national average is only 10%. But when it’s discovered that you are an entertainment attorney in Los Angeles, all might be okay. In any instance, if you have the proper documentation for your deduction you shouldn’t be afraid to claim it.

Taking Large Charitable Deductions
Charitable contributions are a great write-off and help you feel all “do goodie” inside. But if your deductions are disproportionately large compared with your income, it raises a red flag. This is because the IRS knows what the average charitable donation is for folks at your level. Also, if you don’t get an appraisal for certain donations or fail to file Form 8283 for noncash donations over $500, you become an even bigger target.  With that said, be sure to keep all your supporting documents and follow these tips in case the IRS wants you to prove the number listed on your return.

Improper Reporting of Capital Gain/Loss Transactions
When you sale or dispose of a house, stocks, options, etc. the transaction will typically be reported to the IRS via Form 1099-S, 1099-A, 1099-B, etc. Well, if you don’t report the cost and selling prices correctly or in line with what the IRS has, then they will sometimes send you a letter. Not all of these items will result in more tax for you as the IRS amounts may not reflect the entire story. For example, if you sell stock for $10,000 but the cost/basis is shown as $0, the IRS will expect to see you report a $10,000 gain. But what if the cost/basis isn’t correct and you really paid $12,000 for the stock (which wasn’t reported to the IRS)? Well, your $10,000 gain is really a $2,000 loss and simply has to be proven/explained to them.

Top 3 Groups With IRS Debt

This form can be the death of you!

This form can be the death of you!

When it comes to running afoul of the IRS, certain generalities often come to mind regarding the types of people. Terms like deadbeat, scofflaw, tax evader, tax protester and the like tend to come to mind. But did you know that most of the people who generate IRS debt actually didn’t intend to? Furthermore, did you know that most of them (professionally) will fall into three categories? Let’s take a deeper look.

Independent Contractors. Working for yourself can be a dream. Whether it’s being a consultant or driving for Uber on the weekends, being your own boss can feel liberating. Oftentimes, when one is first approached with being a contractor, one of the things that will be “sold” to them is how no taxes will be taken out of your check. How can that be? We’ll that’s because most independent contractors are paid via Form 1099-MISC from a tax perspective. While earning a bigger check can sound wonderful at the onset, it’s a thing that come back to bite you come tax time.

Attorneys. If you’re an attorney who works in private practice for yourself, then you can suffer the same consequences as those who are independent contractors. This is because those who report compensation to attorney’s also tend to do so via Form 1099-MISC (see a trend here). If you look at the form, you will notice that box 14 is labeled “Gross proceeds paid to an attorney.”

Realtors. Realtors are another group that also tend to get into tax trouble with the IRS. Can you guess why? Correct; it’s because they receive their commissions via Form 1099-MISC!

The Problems Caused By Form 1099-MISC.
Being paid as a contractor is not an issue. They key is to know the difference in how an contractor deals with their taxes versus an employee. In this post on our sister site, one can learn some of the details. However, the summary version is that when you work as a contractor, YOU are the one who has to withhold AND remit the taxes to the IRS and state taxing authorities.  How do you do this? Via estimated tax payments.

Key Takeaways?

  • Those as independent contractors are at greater risk for running afoul of the IRS
  • If you will be paid via Form 1099-MISC, you need to consult with a tax professional
  • You will want to make sure that you are doing estimated tax payments (a.k.a. quarterlies)
  • If you don’t pay enough in estimated taxes, you can quickly generate a tax bill that you can’t satisfy.

Are you an independent contractor/freelancer who needs help staying in Uncle Sam’s good graces? Give us a call or shoot us an email. We’d be happy to tell you the steps you need to take and assist you if needed.

States With No Income Tax

When tax time rolls around, you typically have to file a state income tax return at the same time that you file your federal income tax return.  However, if you live or work in one of these seven states you will not  have to file an income tax return come tax time:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

In addition to the above states, the following two only tax income from dividends and interest:

  • Tennessee
  • New Hampshire

Living in one of these states will certainly save you from the hassle of having to file an extra return during tax season, but it won’t necessarily save you any money. These states make up for the gap left by not collecting income taxes by charging relatively higher property, sales, and fuel taxes.  Based on 2013 data, the following graphics indicate where each of these states derived their revenue:

Alaska

Florida

Nevada

South Dakota

Texas

Washington

Wyoming

Tennessee

New Hampshire

Normally, you have to file a resident tax return in the state where you are a resident.  That state will tax you on all of the income earned, no matter what state it is from.  Thus things can get a little complicated if you live near the boarder in any of the “non-tax” states but work in one that does charge its residents an income tax.

So if you are a resident of a state without an income tax, you will still need to file a return in any other state where you earned money. Conversely, if you are a resident of a state with an income tax, but you work in one of the seven without one, you will not have to file a nonresident return there.

Remember, you can easily take care of all your state income tax returns at the same time you file your Federal return.  Have unfiled state returns that you need to take care of?  Feel free to give us a call or shoot us an email.

Tax Year 2015 IRS Calendar

Wondering when certain taxes are due?  Need to know the exact deadlines?  Take a look at this post as we outline the tax deadlines for individuals/businesses and employers.  For further details, chck out IRS Publication 509.

General Calendar For Individuals, Corporations & Partnerships

January 15, 2015     

  • 4th Quarter 2014 Estimated Tax Payment Due If you are self-employed or have other fourth-quarter income that requires you to pay quarterly estimated taxes, get them postmarked by January 15, 2015.

March 16, 2015

  • Deadline for filing a 2014 corporation or S-corporation return or extension.

April 15, 2015

  • Individual Tax Returns Due for Tax Year 2014. If you haven’t applied for an extension, e-file or postmark your individual tax returns by midnight April 15, 2015.
  • Individual Tax Return Extension Form Due for Tax Year 2014. Need more time to prepare your tax return? File your request for a tax extension by April 15 to push your deadline back to October 15, 2015.
  • 1st Quarter 2015 Estimated Tax Payment Due. If you are self-employed or have other first-quarter income that requires you to pay quarterly estimated taxes, get your Form 1040-ES postmarked by April 15, 2015.
  • Last Day to make a 2014 IRA Contribution. If you haven’t already funded your retirement account for 2014, do so by April 15, 2015. That’s the deadline for a contribution to a traditional IRA, deductible or not, and a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2015, you can wait until then to put 2014 money into those accounts.

 June 15, 2015   

  • Deadline for filing a 2014 personal return for U.S. citizens or residents living and working abroad, including military duty.
  • 2nd Quarter 2015 Estimated Tax Payment Due. If you are self-employed or have other second-quarter income that requires you to pay quarterly estimated taxes, make sure your payment is postmarked by June 15, 2015.

 September 15,  2015

  • Final deadline to file your 2014 corporation, S-corporation, partnership, or estates/trusts tax return if you filed an extension.
  • 3rd Quarter 2015 Estimated Tax Payment Due. If you are self-employed or have other third-quarter income that requires you to pay quarterly estimated taxes, make sure your third quarter payment is postmarked by Sept. 15, 2015.

October 15, 2015   

  • Extended Individual Tax Returns Due . If you got a filing extension on your 2014 tax return, you need to get it completed and postmarked by October 15, 2015.
  • Last Chance to Recharacterize 2014 Roth IRA Conversion. If you converted a traditional IRA to a Roth during 2014 and paid tax on the conversion with your 2014 return, October 15, 2015 is the deadline for recharacterizing (undoing) the conversion. Doing so could save you money if the IRA has lost money since the time of the original conversion.

 January 15, 2016   

  • 4th Quarter 2015 Estimated Tax Payment Due. If you are self-employed or have other fourth-quarter income that requires you to pay quarterly estimated taxes, get them postmarked by January 15, 2016.

Employer’s Tax Calendar   

January 31, 2015

February 28, 2015

March 31, 2015

By April 30, July 31, October 31, and January 31

Cities With An Income Tax

Maybe you are considering moving and want to know if your income taxes will be higher as a result.  Maybe you are a tax professional and just want to know what tax returns that new out of state client you landed needs to file.  Either way, knowing what cities levy an income tax is always helpful information to have.  So without further adieu, here is the summary of cities that impose some form of income tax:

Alabama: Birmingham and Mountain Brook have a 1% occupational tax on gross wages.
Colorado: Three cities impose flat taxes on compensation.  Aurora charges $2 per month on compensation over $250, Denver charges $5.75 per month on compensation over $500, and Greenwood Village charges $4 per month on compensation over $250.
District of Columbia: Washington D.C. imposes an income tax at a rate of 4% for the first $10,000 of income, 6% for $10,001 to $40,000 of income, 8.5% for $40,001 to $350,000 and and 8.95% for income over $350,001.
Delaware: Wilmington has a 1.25% tax on income.
Iowa: While not necessarily “cities” there are hundreds of school districts that impose an income tax surcharge on their residents.  These surcharges range from 1% up to close to 20% of the state income tax owed.
Indiana: Similar to above, this state’s counties tend to have an individual income tax assessment.
Kentucky: Several cities in Kentucky levy income taxes, some of the larger ones being: Bowling Green (1.85%), Covington (2.5%), Florence (2%), Lexington-Fayette (2.25%), Louisville (2.20% for residents and 1.45% for non-residents), Owensboro (1.33%), Paducah (2%), and Richmond (2%).
Michigan: Several cities in Michigan impose income taxes with rates ranging from 0.50% to 2.50%.  Detroit’s income tax rate is 2.50% for residents and 1.25% for non-residents.
Missouri:  Both Kansas City and St. Louis have a 1% income tax.
New York: New York City and Yonkers both have individual income taxes.  NYC rates range from 2.907% to 3.876%.  Effective with tax year 2014, the rate is 16.75% of the net New York State tax (i.e., the sum of all state taxes imposed for a tax year, less any credits).
Ohio: Hundreds of cities in Ohio have an income tax, including Columbus, Toledo, Cincinnati, and Cleveland.
Oregon: The Lane County Mass Transit District (Eugene, Springfield, and surrounding communities) assesses an income tax of 0.67% and Tri-Met Transportation District (Portland) imposes a 0.6918% income tax.  However, these taxes are charged to the employers.
Pennsylvania: 2,400+ municipalities and 400+ school districts within Pennsylvania impose a local income tax or local services tax.  Take a look at the Earned Income Tax page to learn more regarding the cities.

Understanding Estimated Taxes

When you work for yourself you generally have your employer withhold federal and state (if applicable) income taxes from your wages.  Then at the end of the year it becomes a calculation of if you had enough withheld (i.e. you get a refund) or have to make a balance due payment.

But what if you work for yourself (i.e. self employed) and no one is “withholding” anything from your check?  Then this post will clue you in on how you make your payments and keep Uncle Sam happy.

What is estimated tax?
Estimated tax is how you pay your taxes when you have income that isn’t subject to withholding.  Just think of it as what your employer does for you when you don’t have an employer ( so to speak).

Who has to pay it?
If you are filing as a sole proprietor (Schedule C), or receive income as a partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments.  Fortunately, you only have to make payments if you expect to owe tax of $1,000 or more when you file your return.

If you own a  corporation, be advised that  you generally have to make estimated tax payments if you expect it to owe tax of $500 or more when you file its return.

When are payments due?
For estimated tax purposes, the year is divided into four payment periods. Each period has a specific payment due date. If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

For the period:              Due date:

Jan. 11 – March 31           April 15
April 1 – May 31                June 15
June 1 – August 31          September 15
Sept. 1 – Dec. 31               January 15  of the following year

How do you pay it?
To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.  The worksheet in Form 1040-ES will help you figure the amount.  You can then make your payment(s) using the voucher contained within or electronically via the EFTPS system.

Each state will have a similar form or electronic platform for you to pay the corresponding state taxes.  In our home and surrounding states you would use:

Illinois Form 1040 ES
Indiana Form ES-40
Wisconsin Form 1-ES
Missouri Form 1040ES
Iowa Form 1040ES
Kentucky Form 740ES

What happens if you don’t pay it?
If you didn’t pay enough tax throughout the year (either through withholding or estimated tax payments),  you may have to pay a penalty for underpayment of estimated tax.  You can avoid this penalty if you owe less than $1,000 in tax after subtracting withholdings and credits, or if you pay at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

Need help estimating your tax liability?
Give us a call at 1-844-829-3788 or shoot us an email via the link below and we’ll be happy to assist you with your quarterly projections, filling out your forms or just coaching you through the process.