Expect Massive Delays in Processing Your Tax Return This Year

Every year, the IRS seems to get just a little farther behind in getting tax refunds back to people. Throw in the processing of Economic Impact Payments and you’ve got yourself a royal mess. In January, the Treasury Department warned taxpayers to expect massive delays in processing of your tax returns this year. That’s just great, right? But…relax! Below we offer some tips on how to get your cash back as soon as possible.

Expect Massive Delays in Processing Your Tax Return This Year. An image of the red and white John A. Cochran, Esquire business card and some tax forms.
You can probably expect massive delays in processing your tax return this year.
File ASAP

The early bird gets the refund faster. If you put your return in the queue earlier, there will be fewer returns ahead of yours to process. Keep your files organized and ready to go. If you haven’t gotten organized yet, make it a priority. The IRS is still saying they’ll strive to process refunds within 21 days of receipt. And that theoretically can happen for you if you file your return early and don’t raise any red flags.

File Electronically

To expedite your tax refund process, move away from paper submission. Filing paper returns requires time-intensive, manual processing. To ensure a smoother process, file electronically with direct deposit to avoid delays in process, receiving refunds, or notices from the IRS. More than 90% of 160 million people who file taxes submit their returns electronically. You can also check the status of your refund on the IRS’s Where’s My Refund? page.

Have Documentation for Everything

Whether you file a simple W-2 each year or a complicated small business owner return, have documentation for everything. Have your documentation saved electronically for easy access should you be asked to provide proof of anything in your submission. Any questionable numbers will increase your odds of an audit. Make sure the numbers match on the forms before you submit your return. Anything you’re unsure about leads into our next recommendation…

Don’t Guess, Ask an Expert

Even if you think you have a simple preparation process, rules change all the time. If you can’t easily locate an answer to your question, don’t just guess at what to do. Take the time to ask an expert. Even the big online processing companies have an option to connect with a CPA. The small fee for a consultation could end up saving you thousands in the long run. If you have an especially complex situation, your best bet is to enlist the help of an experienced tax attorney.

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Exercise Patience

Fun fact: the IRS has been running with the same number of staff since the 1970s, despite the American population increasing by 60% since then. Nearly 75% of American taxpayers expect a refund each year, so you’re not alone. Many people count on their tax return to fund vacations or use it pay down debt. However, depending on those refund checks coming in by a certain time can backfire on you. As of December 31, 2021, six million people were still waiting for the IRS to process their 2020 returns. As frustrating as this delay is, there’s nothing you can do. ​

In conclusion, we hope this blog, Expect Massive Delays in Processing Your Tax Return This Year helps with your tax preparation plans. Need help getting your taxes ready or have a question? Our experienced tax professionals can help you minimize any taxes you owe and ensure you comply with all applicable laws. Complete our online form or call us today at 724-216-5180 to learn more.

Seven Tax Considerations for New Businesses

Seven tax considerations for new businesses is our blog topic this month. Did you start a business in 2021? As we enter tax season, we see a lot of new owners make several common mistakes. Here’s seven tax considerations for new businesses to keep you out of hot water with the IRS.

Seven Tax Considerations for New Businesses. An image of a small white tablet with Small Business written on it. Business law and business tax.
Newer business owners need to know small business taxes.
1. Yes, You Have to File Taxes.

Above all, you’ll need to understand how rules changes if you’re new to running a business. As an individual, you only need to file taxes if your gross income exceeds $12,550. That number drops to a net income of $400 as a business owner. You also have to carefully monitor all your income and expenses, much more than as an employee.

2. And Yes, You May Have to Pay Quarterly Estimated Taxes.

When you work for someone else, they take takes out of your paycheck on your behalf. So, when you work for yourself, the IRS expects you to estimate your taxes and submit them quarterly. Failing to do so sets you up for underpayment penalties.

3. Claim Start Up Costs.

Even if you run your business from your kitchen table, it cost money to get set up. You can deduct anything you needed to pay to get up and running, including research and training (Subject to a $5K Limitation ). You can claim everything from marketing, website creation, office furniture and supplies, vehicle costs, and more.

4. The IRS Sees You As ‘Fresh Meat.’

Unfortunately, having your own business raises all sorts of interest from the IRS. Getting audited isn’t the end of the world, IF you’ve carefully followed directions on expenses and deductions with receipts. Keeping up with all the changes year to year can get overwhelming. And if you make a mistake, it can get expensive really quick.

5. Don’t Mix Business and Personal Finances.

If you’ve just started out, you may not have thought about having a separate business checking account yet. But this is one of the first things you should do as a new business owner. Even if you barely edge over that $400 net income line, have a separate account for business income and expenses. This makes things easier to separate for filing purposes and cleaner during any audits.

6. Self-Employed? Don’t Expect a Refund.

Most employees look forward to late spring every year when they receive a windfall as part of their tax return. We’ll leave for another conversation as to why you should minimize tax refunds that basically serve as free loans for the government. Most small businesses serve as a pass-through entity for the owner’s income. Owners pay taxes on that income as part of their individual taxes without any withholdings to absorb the additional taxes. ​

7. Learn from this Return.

Even with a tax specialist helping you, expect a few lessons on how to improve next year. Look closely at your return. Go over it with a tax expert and make sure you understand any penalties or additional deductions for next year. We like to say it’s not rocket science. But, when you’re just starting out, it can really feel like it!

Did you start a business in 2021? If you feel unsure on what to organize or how to get started, relax! We hope that our Seven Tax Considerations for New Businesses blog helped a little.

Still confused? Our, our experienced tax professionals can help you minimize any taxes you owe and ensure you comply with all applicable laws. Complete our online form or call us today at 724-216-5180 to learn more.

7. Learn from this Return Even with a tax specialist helping you, expect a few lessons on how to improve next year. Look closely at your return. Go over it with a tax expert and make sure you understand any penalties or additional deductions for next year. We like to say it’s not rocket science, but when you’re just starting out, it can really feel like it! Did you start a business in 2021 ? If you feel unsure on what to organize or how to get started, relax! O ur experienced tax professionals can help you minimize any taxes you owe and ensure you comply with all applicable laws. Complete our online form or call us today at 724-216-5180 to learn more.

Prepare for the Inevitable Upcoming Tax Season

Every year right between Christmas and New Year’s people start dreading tax season. That shoe box or receipt drawer may not close all the way anymore. Maybe you just found the statement for quarterly tax estimates (from June) in another pile of papers. Likewise, maybe your resolution list from January 2021 just resurfaced that included “stay on top of taxes” on the list. You already know that when you prepare for the inevitable upcoming tax season, it will suck so much less. So, let’s get started!

Prepare for the Inevitable Upcoming Tax Season. Image of red and white John A. Cochran, Esq letter head with money in background.
Get Out Ahead of Crunch Time

Rather than pouring yourself another cup of cheer and making tax preparations next year’s problem, face it head on. You can pour that cup of cheer if you’d like. However, digging in now will make Future You so much less stressed come tax time.

Picture yourself the evening of April 14, 2022, what do you see yourself doing? Do you see yourself furiously adding up totals? Trying to find random tax documentations? Or would you rather have plans to join your buddies for a well-deserved thirsty Thursday at the local watering hole?

Get Organized

Most tax experts will say it matters less how you organize your paperwork but more that you actually do it. So long as you have materials in order so that you can produce documentation requested for tax purposes, you’re good. You will save money in preparation fees.

If you don’t currently have a system or experience exasperated looks from your tax professional each year, ask yourself why. Perhaps your current system or lack thereof could use a tune up? Rely on the advice of experts on how to create or improve on your current techniques. You’ll make everyone’s lives easier.

Check Your Information

Double check that all your information on file with the IRS is correct, including direct deposit information for refunds. Even something as simple as an address change can get forgotten during a busy year.

Closely examine everything from dependent information to retirement and investment accounts to income streams. This year remember to check Economic Impact Payments and Child Tax Credit Updates, too, if applicable. Spotting differences now can avoid potential problems after filing.

Ask Questions and Get Clarifications Early

Do some early research to see if you need to file differently or can add new deductions. Whether you work with an accountant or use a self-service tax filing tool, ask follow-up questions from the experts.

Get clarification on changes in tax deductions early in the season so you have time to do something about them. Finding out about a new deduction does no good if you didn’t save the proof necessary to claim it.

Nervous about this upcoming tax season? How will you prepare for the inevitable upcoming tax season? Relax! Our experienced tax professionals can help you minimize any taxes you owe and ensure you comply with all applicable laws. We help our clients avoid legal issues with their taxes while providing peace of mind. Complete our online form or call us today at 724-216-5180 to learn more.

John A. Cochran, Esq logo in black and white. Prepare for the Inevitable Upcoming Tax Season.

What Makes a Good Guardian?

What makes a good guardian? Creating a will and estate plan means thinking about those you leave behind after you die. If you have young children, wards or even beloved pets, your will should also include naming a guardian. So, what do you look for in a guardian?

What makes a good guardian? An image of a person writing a will and estate with a quill pen.
Find the right guardian.
A Guardian’s Role

Firstly, after your death, a guardian will bear responsibility for the care of those named. Most commonly this refers to minor children under the age of 18. A guardian provides basic necessities, medical care, education and support until the child reaches 18 years old. They must act in the best interests of the child.

Common Guardian Nominees

Usually, the other parent or a stepparent may be named as guardian of young children. While tempting to name your parents (after all, they raised you), consider the likelihood of them outliving you. More commonly siblings, close friends, or other adult children make good nominees to serve as guardians. In the best scenarios, the adult already knows the child and their personality well.

Important Attributes

Most importantly, a prospective guardian should have the physical and mental abilities as well as the financial stability to care for a child. They should also be dependable and trustworthy. In addition, beyond that baseline, you’ll have to consider who would best fill your role in your absence. Who shares your core values and beliefs? Who would parent your child in a manner similar to how you would? Guardians should also have the patience to support a child through the traumatic experience of losing their parent.

Consent to Serve as Guardian

This should go without saying. However, we’ll just put this right here: you should always ASK someone before naming them guardian of your child. In the event of your untimely death, named guardians should be aware of their new responsibilities. Having a named person unable or unwilling to serve as your child’s guardian could be doubly devastating for them.

Backup Plans

To lessen the anxiety of finding THE guardian, parents should consider naming additional adults to serve as backup guardians. Things happen and even a well-informed, amenable first choice may have to bow out. Having multiple options can lessen the burden on someone who may no longer be in a position to serve as guardian.

Periodically Review

As with most aspects of an estate plan, it makes sense to revisit guardian selection on a regular basis. Divorces, fallings out, or other unfortunate events could make previously ideal guardians no longer the best choices. Of course, you should make those impacted by your changes aware of them. ​

Every parent of young children should include guardianship as part of their estate planning. Knowing what makes a good guardian is only part of the equation. We know that every client has unique situations, and we take the time to understand your needs and wishes. Then we’ll offer advice on your best options. Call John A. Cochran, Esquire, in Greensburg at 724-216-5180 or use our online form to schedule a free consultation.

What Makes a Good Executor?

We’ve been telling people for a while now that you need a will.

Read more here—> https://www.jacochranlaw.com/reminder-you-need-will

Don’t just take our word for it. Here’s even more: https://www.thebalance.com/why-you-need-a-will-1289264

Likewise, you can find many more reasons why you should have a will anywhere on the web.

For those trying to do the right thing, after beneficiaries, the next question becomes who will serve as executor? This is an important decision. But before you decide, we’ve created this post to help you think about what makes a good executor.

Image of a hand stamping a last will and testament.
Family

Most people automatically select a reasonably responsible family member to serve as executor of their will. Usual suspects include spouses, siblings, parents, children or close cousins. One word of caution: you should select at least one person younger than you. After all, not to be rude, but your executor might not outlive you if they are older.

Close Friends

Not everyone has family they can trust. This makes “families of choice” a more viable option to execute a will. Sewing up a clear will and executor clause becomes even more important if there are next of kin. The good news a will can cover that base for you.

Attorney or Other Trusted Professional

Sometimes for a variety of reasons, a person does not have trusted family or friend to name as their executor. Sometimes they just want to minimize any squabbles by putting an independent third party in charge of executing the will. The downside of this arrangement is that your estate will pay a fee for their services.

Limitations

If the person you name as the executor lives in another state, you may need to check state laws. Some states have special requirements about family members, bonds to protect heirs from mismanagement, or the appointment of in-state agents. Each state will also set executor fees for third party management, depending on the size of estate.

Replace Only if Necessary

The bottom line is you want to choose an executor who is mentally and financially stable to do the job. You have to be able to trust they will carry out your wishes as outlined in your will upon your death. If a situation changes that no longer makes your named executor the best option anymore, you can create a codicil. A codicil serves as an amendment to the original will which could name the new executor. You must have it validated just like the original will with two legal witnesses. Placing your trust in an executor to carry out your wishes after your death is no small matter. If you need help putting together a will or want advice on selecting an executor, relax!

What makes a good executor? An image of two hands signing a will document.

Finally, we know that every client has unique situations. However, we take the time to understand your needs and wishes. Then we’ll offer advice on your best options. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form to schedule a free consultation.

Reminders on Tax Preparations for the Year of COVID

The effects of the global pandemic and economic crisis will be felt for years to come. But this year, finalizing year-end accounting for businesses has special challenges in 2020. Special considerations, losses, business closing, and accounting for government relief programs will likely amplify the usual stressors of tax season. Before getting started on the particular aspects for businesses this year, it helps for taxpayers to cover the basics. So, below we offer a list of basic reminders on tax preparations for the year of COVID.

a photo of someone doing taxes
Confirm Records of All Business Expenses

Maybe you legitimately paid for a new business computer but cannot find the paper trail. You can usually replace missing receipts with a bit of research. Reviewing credit card statements or order histories from the store can provide proof of purchase. Also avoid claiming untraceable income to family members, lavish gifts, and other expenses outsized for the level of income generated.

Only Claim Actual Business Expenses

A personal laptop you bought your kid for remote learning does not count as an actual business expense. Tempting as it sounds, you cannot justify your business improved by no longer having them borrow your computer for schoolwork. The IRS will figure out that’s not an actual business expense. Make several little ‘they’ll never notice’ claims and you could expose yourself to costly penalties. Other areas that raise red flags include claiming unusually high utility costs for a home office, or unrelated professional development. 

Procrastination Pain

Forget whatever you told yourself in school about working better under pressure by waiting until ‘later’ to do your work. When you wait until the 11th hour, you risk not having enough time to pull all your documentation together accurately. Mad scrambles fueled by adrenaline can also leave money on the table. You increase your chances of maximizing your deductions when you take time to consider all possible deductions thoughtfully.

Clueless Accounting

Going through the entire period unaware of tax liabilities spells disaster for business owners. Being blissfully unaware does not exempt you from repercussions and avoiding proper accounting will only make things worse. Aside from the shock of owed taxes when filing, you can also accrue serious penalties for filing late or underpaid quarterly estimates.

Stay on Top of IRS Correspondence

As we’ve mentioned in other blogs, if you receive a letter from the IRS, do not ignore it! We cannot stress this enough: avoiding whatever is in the correspondence, won’t make it go away. If they request additional information, provide it in a timely fashion. If they question your filing and you do nothing, they assume they’re correct  and move forward with billing. Expect them to start charging interest and late fees.

By starting at a better baseline, you can better prepare for the specifics of the 2020 tax preparations. The good news: you have enough time to find lost receipts, respond to IRS letters, and get yourself organized. You also have time to ask questions about allowable expenses and the best way to attack your unique tax situations. That’s where we can help. Contact our office at 724-216-5180 or use our online form. 

Tax Implications of Closing a Business in 2020

An unfortunate side effect of the global pandemic and economic impact has been the closing of small businesses. But just closing the doors doesn’t end the story. Depending on business structure and number of employees, closing your doors forever can hold additional costs if not done correctly. Today, we’ll discuss the tax implications of closing a business in 2020. 

Structure Complexity Impacts Your Tax Implications

How you structured your business will determine the steps you’ll need to take for a full closing. In addition to filing annual returns and related forms, you will need to pay final wages or compensation to employees. You will also need to cancel your employer identification number (EIN) and close your IRS business account. 

Sole Proprietorships with zero employees, especially when operated from your dining room table, come with little issues when closing. Businesses operations with contractors, employees, or storefronts will need to follow a run-out strategy for payroll, contracts, and leases as well as additional book-closing steps. 

Partnerships operate like sole proprietorships when closing for good. Owners will need to account for dissolution and personal tax impacts. 

C-Corporations, because of their complexities, require far more processing. It includes selling off assets or liquidating stocks. Owners will also need to petition the State for dissolution and various clearance certificates.

Business Requirements

If your business had employees or used contractors, it should go without saying that you need to pay them. You also need to issue their final income statements for their tax filing purposes. 

If you provide a pension or benefit plan for your employees, see how to Terminate a Retirement Plan. If you provide Health Savings Accounts or similar programs for your employees, see About Publication 969.

When you close your business, you will still need to pay final taxes. (You don’t think they’d forget, do you?) This includes n any gains you may have had on selling the business or selling off its remaining assets. 

Keep Records of Everything when Closing a Business
Closed sign for business.

Careful bookkeeping helps business owners and their tax pros through the entire life cycle of a business. An audit by state or federal authorities is never fun, especially if the business activity that spawned the audit is now shut down. Then you incur additional cost and relive the closing experience without the benefit of any new money. If you destroy all supporting documentation on a closed business, you have just compounded that bad experience.

So please, hold onto your tax returns, unemployment records, and other business documents. Digitizing files can make it easier to store them without shoeboxes taking up precious real estate in your hallway closet.

This year has been difficult enough, get peace of mind now by addressing the tax implications of closing a business in 2020. Then you can begin the next chapter of your life with a clean slate. Need help pulling together your material or filling out necessary paperwork? Relax! We have years of experience providing efficient tax return preparation services and business minimizing tax liabilities, even after closure. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form to schedule a free consultation.

Do I Need a Trust Fund?

A photo of money and phrases associated with trust funds

Trust funds get a bad rap. Many connect them with entitled “trust fund babies” who inherit enormous sums of money from ultra-wealthy family. But not only one-percenters benefit from creating accounts designated for specific purposes for beneficiaries. Certain trust funds pass outside of probate, they can potentially save beneficiaries time and money. Also, unlike wills, they are not made public. So, you may ask yourself: do I need a trust fund, too?

We suggest asking that question with a trusty (heh) attorney at your side. While you consider that question, below we explain a handful of commons trust funds and their purposes. 

Living Trust

A living trust designates a trustee to manage assets for the beneficiary/grantor while the grantor is still alive. Trustees manage trusts according to the best interests and wishes of the grantor. Living trusts are typically revocable (amendable during a settlor’s lifetime). When the settlor dies, the trust automatically becomes irrevocable (cannot amend or revoke).

Testamentary Trusts

Also known as will trusts, testamentary trusts act more like a standard Last Will and Testament for the deceased. Unlike living trusts, these trusts do not go into effect until the death of the settlor. Will trusts can protect assets from a grantor’s creditors. They also restrain monies available to the grantors from the inheritance.

Irrevocable Life Insurance Trust 

An irrevocable life insurance trust (ILIT) is a type of living trust set up to own a life insurance policy. An existing policy can transfer to the ILIT after formation. ILITs are irrevocable by definition. This is because the trust must be funded through placing a policy into its ownership. Several tax advantages, both income and inheritance, come with these trust programs. 

Do you have questions about an existing trust? Do you need an experienced attorney to create a new trust for you? Every client has unique situations. We take time to understand your needs and wishes. Then we offer advice on your best options. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form to schedule a free consultation.

Basic Steps to a Tax Audit

No one likes to see that letter from the IRS “congratulating” you on being audited. Before you throw the notice aside and bury your head in your couch, read these basic steps to a tax audit. You should always consult a tax professional, and with our assistance you can get through an audit. We promise. 

1.  Read Letter and Response Time

The first basic step to a tax audit is to read the letter you receive from the IRS. The letter will outline the next steps you need to take. You generally have 30 days to respond to the notice. Responding in a timely fashion will get the ball rolling. This also means you may have a lot of work to do to get ready. It helps to have a tax professional at your side to keep you focused.

Should you decide to engage in the bury-your-head-in-the-couch tactic, the IRS foregoes giving you a chance validate your figures. They just automatically adjust your amount owed and send you a bill. That bill will undoubtedly include penalties and interest on the outstanding amount they think you owe.

2. Win Brownie Points for Being Organized

Think of this like a court case for your taxes. Get all your records together for the portions in question. Any documentation that corroborates with your tax return will help you case and make their life easier. You may save your receipts in a shoe box but sharing them that way will not help your case.

Having the requested material organized will expedite things. Plus, the easier you make going through your files for the IRS examiner, the more they will trust your documentation.


3. Leave Sideshow Material at Home

Also, only provide what they request. Trying to distract them with material from another part of your return will only accomplish two things. You will annoy the auditor with extraneous stuff or potentially make them interested in something they weren’t before. Neither of which is a good thing if you’re looking to get out of your meeting in minimal time.

4. Keep Your Original Documentation

Always make copies of supporting documentation you provide to the auditor. If for some reason production of an original document is necessary, request the auditor make copies for themselves. Do not leave your meeting without the original documents. Any material you give to the IRS, they will likely lose. Also, you should know they will not be responsible for records lost while in their possession. You, however, will need those originals for any future questions. It sucks, we know. Think of it like giving a toddler ringbearer the REAL wedding bands. 

5. Be Nice

No matter what we talk about in our office with clients, above all we tell them to be nice. IRS auditors are people, too (believe it or not). In a world steeped with negativity and quick fuses, it’s easy to forget that crappy behavior will yield crappy results. Also, you can face serious consequences if you engage in threatening or physically aggressive behavior. That’s a federal offense… and likely a highlight on the evening news. So just be nice, even if you perceive they’re acting rude, which the Service rarely does. Seriously per a famous Pennsylvanian, Ben Franklin: “You catch more flies with honey than vinegar” 

These basic steps to a tax audit can help you know what to expect. However, throughout the entire process, you should know your rights as a taxpayer. The IRS mission is to provide America’s taxpayers top-quality service by helping them understand and meet their tax responsibilities. They also pledge to enforce the law with integrity and fairness to all. An experienced tax attorney will help to ensure they uphold their mission.

Don’t go it alone. We can walk you through the basic steps of a tax audit and minimize your tax liabilities. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form.

Considerations when Setting up a Business

A photo of all aspects that go into structuring a business

A strange thing happened as part of the global pandemic and economic crises. Many people, especially if laid off or furloughed, are having “COVID epiphanies.” No longer interested in working for someone else, they’ve decided to go into business for themselves. Congratulations if you’re one of them! You may only plan to run a part-time business as a side hustle for now. However, there are many considerations when setting up a business. 

No two businesses are the same. I encourage you reach out to an experienced business attorney before making any decisions. Different structures offer different sets of pros and cons. Below is a very brief description of a few areas to consider. 

Ease of Establishing

The size and structure you select determines how easily a business becomes a legal entity. Usually businesses start small, helping guide which structures to consider. 

Sole proprietorship’s simple business structure offers easy entry into owning a business, making it the most common small business structure. The sole prop basically acts as an extension of the person.

Partnerships operate much the same way as sole props with owners sharing responsibility.

Limited liability corporations (LLCs) require a bit more work to set up. But they minimize risk while offering flexible management. Most small businesses fall into these categories. 

However, structures also exist for larger entities, including Chapter C and Subchapter S corporations. Here, shareholders exchange money, property, or both for the corporation’s capital stock.

Tax Implications

Tax implications may hold more overall weight than how hard it is to form an organization. 

Owned and operated by one person, the sole prop takes total responsibility for the business’s debt and taxes. LLCs may offer lower risks with less complex taxes than corporations. A C corporation is separate, paying taxes and passing on profits to shareholders.

For more than 35 years, we have guided business owners through decisions involving nearly every type of business. Our past clients include sole props, partners, LLCs, and Chapter C and Subchapter S corporations. Each decision comes from many smaller choices. These choices include business control, asset protection, tax rates, and other matters.

Interested in learning how to turn your COVID epiphany into a proper business? We can walk through considerations when setting up a business with you. Call John A. Cochran, Esquire, in Greensburg at 724-216-0704 or use our online form.