Month: May 2022

Resolving After-Tax-Day Issues

The April 18th income tax deadline has come and gone, but that doesn’t mean that everyone is finished dealing with their taxes. Many people, for a variety of reasons, might still have some loose ends from this past tax season that need to be tied up. Here are some of the more common ones, and how you might handle them.

Didn’t file a return

This year’s deadline to file and pay federal income taxes has passed for most people. If you are due a refund, there’s no penalty for filing late. However, if you owe and missed the deadline without requesting an extension, you should file quickly to limit penalties and interest.

Check refund status

You can check on your refund using the Where’s My Refund? tool. It is available on IRS.gov and the IRS2Go app. To use this tool, you will need your Social Security number or ITIN, tax filing status, and the exact amount of the refund claimed on your tax return. The tool updates once daily, so there’s no need to check more often.

Check withholding

You are encouraged to check your withholding using the Tax Withholding Estimator on the IRS website. This will help you make sure your employer is withholding the right amount of tax from your paycheck. Doing this now could help avoid an unexpected tax bill and possibly a penalty when you prepare and file your taxes next year.

You can use the results from the Estimator to help complete a new Form W-4 and adjust your income tax withholding with your employer. If you receive pension income, you can use the results to complete a Form W-4P and submit it to your payer.

Review payment options

If you owe taxes, you can review all payment options online. These include:

Errors on your tax return

After filing your tax return, you may find an error. Common errors taxpayers should fix are those made about filing status, income, deductions, and credits. You usually do not need to file an amended return to fix a math error or if you forgot to attach a form or schedule. Normally, the IRS will correct the math error and notify you by mail. Similarly, the agency will send a letter requesting any missing forms or schedules.

If you are expecting a refund, you should not file an amended return before your original return has been processed.

The IRS issues most refunds within 21 days if you filed electronically and chose direct deposit. However, some returns that have errors or need more review and may take longer to process.

Is It a Hobby or Business?

Most people have a hobby. Maybe it’s scrapbooking, or maybe it’s restoring vintage cars. Our hobbies are important because they help us relax from the stress of everyday life and because they bring us enjoyment. But what happens when someone with a scrapbooking hobby starts to sell some of his greeting cards? Or when a backyard mechanic sells his vintage car at a profit? When our hobbies start to produce income, it might not be clear whether our hobby is still a hobby, or if it has become a business that should enjoy the financial benefits and responsibilities that are attached to its status as a business.

So what exactly is a hobby? A hobby is any activity that a person pursues because they enjoy it and with no intention of making a profit. People operate a business with the intention of making a profit. When our hobbies turn into a source of income it may be unclear whether we are still participating in a hobby, or if our hobby has grown into a business.

To help simplify things, the IRS has established factors that must be considered when determining whether an activity is a business or hobby. These factors are whether:

  • You carry out the activity in a businesslike manner and maintain complete and accurate books and records.
  • You put time and effort into the activity to show you intend to make it profitable.
  • You depend on income from the activity for your livelihood.
  • You have personal motives for carrying out the activity such as general enjoyment or relaxation.
  • You have enough income from other sources to fund the activity.
  • Losses are due to circumstances beyond your control or are normal for the startup phase of your type of business.
  • There is a change to methods of operation to improve profitability.
  • You have the knowledge needed to carry out the activity as a successful business.
  • You were successful in making a profit in similar activities in the past.
  • The activity makes a profit in some years and how much profit it makes.
  • You can expect to make a future profit from the appreciation of the assets used in the activity.

In the end, all factors, facts, and circumstances with respect to the activity must be considered when determining if an activity is a hobby or a business. No one factor is more important than another.

If you have questions about whether your hobby might be a business, we encourage you to contact our office so that we can help advise you, and make plans for the upcoming tax year. By taking action now, you might save yourself a big tax bill next year.

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