Completing the Tax Return Form

Completing your tax return can be both frustrating and time-consuming but the whole process can be made a lot easier by understanding the processes and procedures beforehand.

You can complete your annual return on paper or online- using either HMRC software or one of the many readily available commercial softwares on the market. We recommend doing this online as it is quicker, prevents delays and there is no chance of it getting lost in the post.

The deadline for sending your tax return back

The deadlines differ depending on how you send your return back- these are called the filing dates. The deadline for paper tax return is 31 October following the end of the tax year, and this is the date HMRC must receive your annual return. If you are completing this online, HMRC must receive your tax return by 31 January following the end of the tax year.

It is very important you meet these deadlines as failing to do so will automatically incur a late filing penalty of £100. Another £100 penalty will be incurred if this is still outstanding after six months.

If you send your tax return by paper and you miss the 31 October deadline, you cannot avoid paying the late filing penalty by switching to the online return deadline of 31 January. If your tax amount is less than £100 however, HMRC may reduce the penalty to an amount that is equal to the tax that is due.

Paper Tax Return

HMRC guarantees to calculate your tax bill and let you know the result before the payment deadline of 31 January following the end of the tax year, providing you send your paper return by the filing date. If you send your return after the filing date, HMRC cannot guarantee to calculate your tax bill and tell you the result in time for any 31 January payment.

If you would like to calculate your tax bill yourself, or if your paper return is late, you can ask the HMRC for their Tax Calculation Summary pages and notes to help you work out your tax bill. The number to contact HMRC on for this is 0845 9000 404. You do not need to send the supplementary pages HMRC send you as part of your tax return.

Online Tax Return

The HMRC online return service is easy to use and saves time compared to the paper version. In order to be able to use the online service, you must first register by going to the HMRC website and following the registration process. HMRC will then send you a Personal Identification Number (PIN) and this can take up to seven days. Therefore we highly recommend you do not leave registering for the online service until 31 January. Remember, if you do then your return will be late and you will incur the late filing penalty- therefore do it will in advance.

A series of questions will be asked by the online tax return system to bring forward only the relevant parts of the tax return that apply to you. The system will then do the calculations for you and will provide an on-screen help for you as you go along. The system has other built-in checks to assist you in getting your tax return right.

Once you have completed the online return you will receive an acknowledgement of receipt.

Keeping records

To fill in a complete and correct tax return, you must by law keep all records. If your annual return is incomplete and you are found by HMRC to owe tax, you may be required to pay interest and a penalty- so keep all records and get it right in the first place.

Using provisional and estimated figures

If you are waiting for some of the information which you need for your annual return, you can use provisional figures to avoid delaying filing your tax return. If you are using provisional figures, remember to draw attention to this in the ‘Any other information’ box on the paper return or in the white space on the online return. Please remember to replace your provision figures with the final ones as soon as you know them.

Sometimes you may have to estimate an amount, for example, the private proportion of motoring expenses or the cost of using part of your home for business use. You do not need to replace this figures and you do not have to draw attention to this kind of estimate. You will find available guidance about this on the tax return.

Tax Returns – Are They Really All Created Equal?

As we approach Tax Season, I wonder how many people understand the potentially vast differences in the quality of tax return preparation? Are tax returns really the commodity that they seem to be? Is a tax return prepared by the tax service in the mall of the same quality as that prepared by a major CPA firm? What does it mean to have a “quality” tax return? In fact, can a tax return be prepared in such a way as to reduce income taxes?

As someone who has been involved in the tax return preparation process for almost 30 years, let me share some thoughts on this subject.

Accuracy in a tax return simply means that the information provided by the client was reflected on the tax return. It does not mean that the tax return was prepared in the BEST way it could have been prepared. In fact, I RARELY see a tax return from a new client that was prepared the way I would prepare it.

Let me give you some examples. Suppose you have some expenses that could either qualify as investment expenses or business expenses. Either classification would be “deductible” on the tax return. BUT, a business expense is MORE DEDUCTIBLE than an investment expense. How is that possible? An investment expense is deducted on Schedule A and is classified as a “Miscellaneous Itemized Deduction.” There are several limitations on a miscellaneous itemized deduction. First, you only get to deduct these type of expenses to the extent they exceed 2% of your income. So, if you have $300,000 of income and $7,000 of investment expenses, you only get to deduct $1,000. What’s worse is that if you are in the Alternative Minimum Tax like millions of taxpayers, you don’t get any benefit for your investment expenses.

On the other hand, if you were able to deduct these same expense on your Schedule C or your Schedule E, you would be able to deduct 100% of the expenses. In addition, the expenses would reduce your self-employment income from your business. That’s another 15.3% tax benefit on top of the income tax benefit.

Another example of less than stellar tax return preparation relates to depreciation. Depreciation is the government’s gift back to investors, especially real estate investors, for investing in long-term assets such as equipment and buildings. What most tax preparers don’t understand is the idea of a cost segregation or chattel appraisal. The whole goal with depreciation is to get more of it sooner. This provides the investor with a terrific tax benefit in the early years of property ownership. And under the important wealth creation principles of leverage and velocity, the sooner we have cash, the sooner we can invest it and obtain major returns from our investment. The problem appears to be a lack of knowledge from many tax preparers and CPAs about the rules surrounding cost segregation.

The one area where I do see mistakes relates to those taxpayers who file returns in multiple states. This is a specialty area of mine, which I teach at Arizona State University. Even in the major firms, there is a lack of understanding by the Federal tax departments of the many opportunities for tax savings when preparing multistate tax returns.

What it comes down to is whether your tax preparer/CPA has the knowledge and creativity necessary to prepare the BEST return possible. And is it worth it to you to pay a little more to get the better result? Are you focused on the amount you pay your advisors or are you focused on the return they provide you on your investment? Let me give you an example.

Suppose you have a choice of paying $750 for your tax return to a small CPA firm or $2,000 to an innovative, knowledgeable firm. All things being equal, anyone would choose to pay the lesser amount. But what if all things are not equal? What if the $750 gets you an adequate, accurate return but the $2,000 would get you a return where you pay $5,000 less in tax? Which is the better deal? In one, you are out $750 with no return on your investment. In the other, you are net ahead $3,000. Clearly, the $2,000 fee returns a greater value.

This tax season, review your own tax situation and the advice you are receiving from your tax preparer/CPA. Are you getting the return on investment you want? Are you getting the planning ideas you need? Are your taxes going down or do they continue to increase? Taxes are such a major part of your wealth creation that you cannot afford to ignore one of the most important part of the tax planning process – tax return preparation.

Warmest regards,

Tom

Tax Returns

Taxes are compulsory charges or levies collected by states or anything that functions like a state. In a modern society, taxes are usually levied in money. Taxes have always been gathered in one way or the other. Tribal governments used to collect taxes either in the form of labor, produce or even gold.

In the past, taxes have sometimes funded wars or projects. In the modern context, taxes are essential to help a country build infrastructure, offer education, maintain law and order, finance economic structures, roads, administration, defense, etc.

In 1913, President Woodrow Wilson set up the Federal Income Tax. This income tax system deducted about 1% to 7% of a person?s income. Ever since then, new taxes have been added, and after World War I, the American Tax Code has become four times bigger.

In America, citizens who earn above a certain level are expected to file tax returns, and pay taxes if applicable. You are not expected to file returns if you have salaries and pensions taxed under Pay As You Earn (PAYE). This is because the correct amount of tax is being deducted at source.

Tax returns are essentially forms given by the Internal Revenue Service (IRS) in which all the details of income and incurred expenses have to be given. The taxes that you have to pay are calculated based on this. An individual can calculate these taxes, or the IRS could do it.

The form has one page, which everyone has to complete, and nine supplementary forms, which people with specific types of income have to file. There is also a supplementary booklet that helps to file taxes.

You are expected to file returns if you are self-employed, have other income received in gross and from which taxes have not been cut, such as rental income from property, interest in a national savings income account, etc. Returns would also have to be filed if the taxation rate is high or complex.

Sometimes the IRS many issue tax return forms to you even if you pay taxes under PAYE. This happens if you have changed jobs and it is to check if your taxation is in order.

Always file your tax returns if you know that the correct amount of tax has not been paid on your income. Do not wait for the IRS to send you a tax return. If you fail to do so you may pay a fine or incur a penalty. Several people have gone to prison for failing to file their taxes correctly.

Send your tax returns back to the local tax office by January 31st after the end of the tax year; otherwise you will automatically incur penalties. If you want the IRS to do the tax calculations, you must send the completed return to the local tax office by September 30th following the end of the tax year.