3/14/2013 3:57 PM ET|
Tax tasks and deadlines for March
March 15 is the deadline for some taxpayers to take action. It's also a good time to make a plan for how you'll pay taxes due April 15.
This post is by Eva Rosenberg at MarketWatch.com.
Here are tax deadlines and issues to keep in mind this month.
We start with gentleness from the Internal Revenue Service. Farmers' and fishermen's tax returns are normally due on March 1 if they have not made any estimated tax payments during the year.
As a result of the delays in getting the tax-reporting system booted up this year, the IRS has extended that payment and filing deadline to April 15 this year. Just use Form 2210-F to avoid any penalties.
March 15 roars in like a lion -- lots of things are due.
- Corporate tax returns are due for 2012 for calendar year corporations -- both S and C. Companies that aren't quite ready to file may request a six-month extension by filing Form 7004 (and the corresponding state form). Of course, if there is any balance on the 2012 corporate tax liability, it is due -- even if you file an extension.
- If you were thinking about switching your S corporation to a C corporation or vice versa for 2013, you must inform the IRS by filing Form 2553.
- The first quarter 2013 estimated tax payment is due.
- K-1s need to be sent, whether they’re ready or not, to: all S corporation shareholders, and all partners of electing large partnerships (100 or more partners).
Did you know S corporations pay no federal taxes? You can avoid all the estimated taxes and year-end tax liabilities if your small business is an S corporation. There is always a price. The owners give up the right to a whole menu of employee benefits that would be available to them in a C corporation. But . . . no income taxes, except possibly on the state side — especially in California. California not only has an annual $800 minimum tax on all corporations, limited partnerships and LL-anythings. It also has a 1.5% tax on the profits of S corporations (even more for certain entities).
So how are the taxes on S Corporations paid? By the shareholders -- on their personal tax returns. The K-1s distribute each shareholder’s profit and share of certain expenses and credits. The tax is computed on the basis of the individual shareholder's tax bracket and limitations.
Aside from all the business deadlines, next month, you’re going to have fund your personal income tax balance for 2012, your first estimated tax payment for 2013 and your individual retirement account (Roth or regular) for 2012. Alas, not everyone has refunds coming.
Scramble for money
Just exactly how much money are you going to need to pay your taxes? This is a good time to total up the numbers and to start planning to generate the funds.
Where can you get money quickly and easily? Your savings or investments, if you've been budgeting and setting funds aside.
Don't take distributions from your retirement accounts. Not only do you have to pay federal and state taxes on the money you draw, you may have to pay early withdrawal penalties, too. In fact, in addition to the penalties the IRS and states charge if you draw the money before you are age 59 1/2, your investment or fund may have penalties, too. Although people seem to turn to this source often, it's the most expensive.
With more than a month to raise the funds, you could have a "tax sale." Create a clever promotion to sell an extra batch of products or services specifically to cover this cash drain. This is a favorite tactic of Internet marketers like Paul Myers of www.talkbiznews.com. Come tax time, they design a downloadable product that can be sold and delivered electronically. No packaging, no shipping -- just sell and deliver. You can accommodate sales to thousands of people that way, without staff, supplies, postage or anything. Pure profit. All you need is something enticing and interesting.
That’s not your style? You can still run a tax sale the old fashioned way -- selling something tangible, and/or providing an enticing discount on your products and services. You might be able to generate high sales volumes using Groupon, Amazon Local Deals or other similar systems.
How else can you raise the funds? Rebalance your portfolio and sell off some investments. Or you can borrow. This may be a good time to refinance your home at a much lower interest rate -- in the low- to mid-3% range. Who knows, maybe you could pull out enough funds to cover your taxes, too.
In fact, according to CreditCards.com, credit cards are back to offering long-term zero percent cash advances and transfers (12 to 18 months). Shop around and read the fine print. You might find one or two that don't have any cash advance fees. Otherwise, you’ll face fees ranging from 3% to 5% of the cash advance. Call your own credit card company to request the best rates.
Fund IRAs first
Since money is a rather scarce commodity these days, if you have to make choices about what to pay, fund your IRAs first. Why? The estimated taxes and prior year taxes can be paid later -- with some small penalties and interest, of course. But the IRA deadline is firm. If you don’t fund your Roth or regular IRA by April 15, you lose the opportunity to make the contribution for 2012 forever. The same thing goes for your child’s Coverdell savings account (like an educational IRA).
Not only do you lose the 2012 deduction (on a regular IRA), but you also lose the related Savers Credit. This credit is worth up to $1,000 ($2,000 per couple) if your income is low enough ($55,500 for couples; $27,750 for singles). You can claim this credit for contributions made through your payroll (like your 401k) or on your own.
Got a refund coming?
Of course, if you’re one of the lucky folks who has a refund coming, this is a good time to decide how to use that refund. That will make March end on a high note.
Eva Rosenberg is the publisher of TaxMama.com.
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