More often than not, you, the taxpayer, know, deep down, that you’ll likely owe income taxes in the coming tax year if you’ve 1) had to pay in the last filing season, 2) if there’s been a change in your income stream, or 3) there’s been a change in your living arrangement or work location. This can come in the form of moving or changing your work location to a township (for those filing municipal taxes), an inheritance, change in income from wages to retirement savings or starting your own business, or taking on passive income, just to name a few. But regardless of the life event, the IRS has a publication you can search that outlines how these taxes are to be paid and when.

It’s easy to get surprised with a tax bill thanks to these events, but you can plan for these changes in income by following just a few steps.

I can speak to taxes in Ohio, and depending on where you live and work, your municipalities could be either taxing or non-taxing. There are hundreds of townships that count as non-taxing municipalities, so you’ll want to be careful on how you file. For instance, if you live in a township, but work in a taxing municipality, then you’ll want to have local taxes withheld for the place you work. It can be a little confusing, especially if you work in multiple locations, all with different tax rates.

Compound that with the Regional Income Tax Authority (RITA) or the Central Collection Agency (CCA)-run municipalities, places that collect their own tax, and those that don’t collect at all, paying local taxes becomes complicated quickly. For wage earners, pay close attention to taxes taken from your paycheck if you move and make sure they’re adequately taken out, either for your work or residence municipality, whichever is higher.

Changes to your income stream can have an impact. Payroll departments and services do a pretty good job making sure the correct amount is taken from your pay. Again, make sure to communicate this to your workplace if you work in a non-taxing municipality, because this sometimes gets missed and you end up with a nasty bill come tax time. But more importantly, if you go from wage earning to owning your own business, keep this in mind: When you get a paycheck, you’re looking at your net earnings, and when you get paid directly for your goods and services in your own business, those are gross earnings. The latter hasn’t been taxed yet, so don’t get confused with the idea that you’re making more as someone who’s self-employed. Make sure you’re comparing apples to apples (net income to net income, in this case).

Here are a few simple steps you can do to stay on top of your taxes without being surprised at year end. First, and most importantly, tabulate your income from sales/jobs and your expenses. This will inform you how much you make. Calculate how much in taxes you need to hold for each month or each job. This can be done by understanding your tax tables:



This combined income tax table represents 2023. This represents what’s known as a progressive tax table. That’s where, if single, the first $11,000 is taxed at 10%, the next $33,725 ($11,001 to $44,725) is taxed at 12%, and so on. If married filing jointly, you also need to consider your spouse’s gross income. This will give you an idea about the amount to hold for federal taxes. In Ohio, your municipal taxes are not progressive, and are, therefore, flat. If the highest residential or workplace tax rate is 2.5%, then hold 2.5% of all income off to the side for local taxes.

The state of Ohio has its own income tax it collects on wages, but for the small business, there’s a $250,000 deduction for those filing single or married filing jointly, or $125,000 deduction for married filing separately. This is referred to as the Business Income Deduction. Once income is more than these thresholds, then the income is taxed on a business tax table. Here’s where you’ll want to estimate whether you are within the threshold or not to determine how much to hold for Ohio. Ohio also collects sales taxes which are due monthly. If your business activity falls under Ohio’s Sales and Use tax, you’ll want to collect on that and make sure Ohio is paid on time and in full. Not doing so is where a lot of small businesses get into trouble and sometimes fail. A last word of caution for any small business is to hire an accountant. The costs vary depending on the services needed, but they will be your first line of defense when it comes to paying your taxes on time, and the cost has to make sense given the time you normally spend doing your own accounting.

And lastly, underpayment of federal income tax withholding is a simple fix. There are a number of calculators online you can use to figure out an appropriate withholding amount. Another option is to look at your last tax return. Whatever option you choose, contact someone in your payroll department and fill out a W-4 to have the right amount taken from your paycheck. You’re even able to request more withheld in case you think you’ll owe more, but that’s to your discretion. If you get a significant pay increase or a promotion, or even if you’re at the edge of a higher tax bracket, you’ll simply make the modification with payroll.

I’ll leave you with this – if you withhold too much from your earnings every year and you normally receive a large tax return, you are giving the taxing authorities more money than they need from you, interest free. Don’t do that, especially if you could use that money elsewhere. Talk to your tax professional for guidance on getting your tax due in line with what’s expected.

Tree City Tax is accepting new clients for the upcoming filing season, including small business returns. You can book a consultation by calling at (330) 539-4231. Small businesses that schedule a consult before the end of the year reduce their likelihood of filing an extension.

Folks, I can’t stress enough just how important it is to pay your taxes. As simple as that sounds, many taxpayers underpay throughout the year and end up accumulating on their tax bill over time. Avoidance with regards to filing your tax returns can complicate your life, quickly, and the IRS can apply a range of penalties for non-filers, including return delays, all the way to civil and criminal penalties. If you’re the kind of person that’s paralyzed with filing or you’re afraid of getting it wrong, the IRS has a Taxpayer Advocacy Service (TAS) that provides resources for those struggling with their past and current returns. Several options are available to cover back taxes, and many of them are offered through the IRS itself.

Let’s get one thing straight, though. You’re going to pay them. Even taxpayers that have money invested in tax advantaged accounts will eventually pay on those assets’ growth, with exception to some tax- exempt assets. For the non-millionaire class, you pay your taxes when they're due, both in the short and long terms. But what happens when you’re buried in tax debt and you’re getting letters from the IRS? First, you have to answer those letters “promptly.” A defensible argument is a response no later than 7 days of receiving the notice. These are mostly automated letters informing the taxpayer of a shortage in payment from last year’s return. These are simple. But if you’re unable to pay this, then the IRS offers a few different payment plans that can also double as a response to the letter.

There are companies out there that purport to give you tax relief assistance to pay on this debt. These are available at a premium and will cost you more than going directly through the IRS. The only website you need when setting up a payment plan is this one: https://www.irs.gov/payments. This website will show you the different payment options you have to cover your debt. It’s also the place you go to pay on your quarterly taxes, so bookmark this page and call the IRS for any questions specific to your situation. The agents are very helpful and will gladly guide you through the process. To set up your payment plan, you will need your tax return available and some idea of how much you’ll be able to budget your payments. Try to avoid any websites that offer these services that do not end in “.gov.”

For those that owe $10,000 or less, work with your tax professional to see where they can help, especially if you filed yourself. It’s not uncommon to find deductions or credits that could have been applied in past returns, reducing your tax burden. Filing amended tax returns is a possibility if there’s an opportunity for you to reduce your tax liability. Let the IRS know that you’re working on this, establish a payment plan, then work on reviewing past returns. If you have a tax savings, then call the IRS and adjust your payment plan accordingly. For those that have accumulated more than $10,000 in back taxes, you have the option to reach out to a tax attorney to see if any of it can be settled. Attorneys can really drive down your tax burden to a more manageable amount.

Tax return preparers are limited in representation in IRS court. Enrolled Agents and CPAs can offer more representation, but these professionals may or may not have the capacity to take these cases and will likely refer you to an attorney. Tax attorneys specialize in tax matters and will give you full representation in IRS court. They’re an effective way to reduce back taxes for the price, and they’re a valuable resource in helping you avoid another accumulation scenario.

The IRS really isn’t as terrifying as they sound. They have a 16 th Amendment responsibility to take revenues to continue programs for a functioning government. Whatever your feelings are about government spend or “taxation is theft,” you can’t avoid this responsibility, and the IRS knows that it’s a burden on the taxpayer. They are not your enemy, and they’re also not loan sharks. They are more than willing to work with you to ensure you pay your fair share without imposing undue burden on you and your family. 

More comfortable working through a tax professional? Reach out to one and they’ll point you in the direction of getting your back taxes resolved. The process is easier than you think, but it requires your commitment, so stop putting it off and take a little stress off your shoulders by being attentive and proactive.

Tree City Tax is accepting new clients for the upcoming filing season, including small business returns. You can book a consultation by calling at (330) 539-4231. Small businesses that schedule a consult before the end of the year reduce their likelihood of filing an extension.

Someone reminded me that Friday the 13 th in September was a nice premier to the Halloween season. We will have Veterans Day, Halloween, Thanksgiving, Indigenous People’s Day, and Hanukkah, just to name a few big days before year end. This season will be more focused on the harvest, friends, and family.

For most people, tax season may be the last thing on their minds. 

For small businesses, and some of the previous year’s tax filers, this means getting your quarterly payments made and wrapping up extensions. For tax-savvy investors, it’s tax loss harvesting. For many retirees, it’s taking your RMDs. 

But for the day-to-day individual earning wages, the holiday seasons can be most celebrated all the way through New Years Day. This will come full circle in February when all of the federal forms are mailed out, marking the dreaded start to tax season.

Recently, I had someone call in with a general question about canceling a life insurance policy that happened to have a cash value. Thankfully, a question with a simple solution, but this led into a conversation about getting started with my firm as a new client. The average tax filer can typically wait until the filing season to get a jump on their returns, but many small businesses with more complicated tax returns could benefit from getting such a head start, especially when they’re new to the tax practice.

I’ll give you an example. You’re a small business, like a sole proprietorship, LLC, partnership, or S- corporation, with inconsistent income streams. Most people know that you need to hold money off to the side from your income to pay on your quarterly taxes.

Just how much to hold is a calculation a lot of us don’t want to do, but there are online calculators that can help. The remaining income after taxes and business expenses can be taken from the business to pay yourself for your own household expenses, fun activities, savings, what have you. These are owners’ draws, and are considered post tax, once you’ve paid your quarterly estimated taxes.

In order to be comfortable with paying yourself, you have to have an idea of what you make and how many expenses you have. This means having some mechanism to track this – otherwise known as bookkeeping. You’ll want gross receipts (money you’re paid) and receipts for items you purchase with business funds, for business purposes. There’s a little complexity when you have to divide your expenses into categories, but if you know how to do this, you can just about do this on your own. Just like any budget, your income needs to exceed your expenses. Having your profit and loss statement gives you a summary of business activity so you know what you can take from the business account for yourself.

During the tax filing season, when you file in April each year, you will have to calculate estimated income taxes. Once calculated, you can pay what you owe in the current year in each quarter to avoid getting slapped with interest and penalties. Not paying on a quarterly basis is one of the few reasons people get into tax trouble with their small businesses. If you’re new to this space, just understand that wage employment has federal and other taxes withheld from your paycheck whereas a small business won’t. Paying into quarterly taxes is similar to tax withholdings from a paycheck.

If you do this already, then working with a new firm is simpler. For those needing guidance in this area, it always helps to get ahead of the season so the preparer can understand your cash flows before the season begins. This can be a lengthy process, and getting a jump on this before next year rolls around can help you avoid filing a tax extension, which could cost more in interest payments. Make the call to a return preparer, and they can help or point you in the right direction to get the help you need.

Tree City Tax is accepting new clients for the upcoming filing season, including small business returns. You can book a consultation by calling at (330) 539-4231. Small businesses that schedule a consult before the end of the year reduce their likelihood of filing an extension.

Over the years, the tax code has offered deductions and credits for taxpayers to reduce their tax burden. Filing your taxes with or without claiming deductions or credits doesn’t hurt the IRS, but it does mean that’s money you leave on the table, and your government isn’t going to correct your error. Why should they? The federal government has a responsibility to collect revenues for the function of government. This means that they will let you know if you still owe them, or an error was discovered to their detriment, but they will not notify you if the error was to their benefit. So, what are these deductions and credits, and what are their impacts to your tax return?



What Are Deductions?

Simply put, deductions are amounts of your taxable income that are excluded from tax. These deductions come in many forms, but most taxpayers are most familiar with the Standard Deduction. This is a sum that’s excluded from your taxable income, like wages, taxable Social Security benefits, self- employment, and retirement distributions, to name a few. In the tax years following 2017, Standard Deduction was primarily used thanks to the Tax Cuts and Jobs Act (TCJA). This boosted the standard deduction, requiring less expense tracking for taxpayers who were looking for ways to save on their returns.

In times before the TCJA, itemizing deductions were more common. Both standard and itemized deductions were available to taxpayers to reduce your taxable income. But since the TCJA, the standard deduction was greatly increased to make less of your gross income taxable, meaning that taxpayers didn’t have to keep out of pocket medical receipts, track State and Local Taxes (SALT), and prove charitable contributions. Itemized deductions are reported on a Schedule A and are reported on the first page of the federal Form 1040 (SR, NR). Since the TCJA, Schedule A filing dropped and most taxpayers used the standard deduction.

Businesses also have deductible expenses and scenarios to lower their taxable income. Business expenses vary from mileage deductions, business use of home deductions, any expenses applied to the business, and even something called a Qualified Business Income Deduction.

The idea of deductions is to encourage growth for a business by reducing the amount of income counted towards your tax liability. They are not a reduction of tax due, to be clear. It’s only a reduction of income included when calculating your taxes before it’s applied to the tax brackets.

What Are Tax Credits?

Tax credits are a dollar-for-dollar reduction in taxes you owe. This comes in many forms, like college tuition spend, children, earned income, energy and energy efficient vehicles and appliances, etc. 

There are “refundable” and “nonrefundable” credits available to those eligible. Nonrefundable credits are dollar-for-dollar reductions in your tax that can reduce your tax bill to zero. Refundable credits are reductions in your tax that can overshoot the tax due and provide you a refund.

 Let’s give two examples here. In the nonrefundable case, let’s say you owe $100 in taxes, but you realize an energy efficient credit of $600 for a new, energy efficient furnace installed in the home. You would ultimately owe nothing in taxes. Now let’s consider a refundable case, where you owe $100 in taxes, but you qualify for $800 in the American Opportunity Tax Credit. In this scenario, you would be refunded $700 on your tax return.

Important Considerations

Deductions and credits are powerful tools to reduce your tax burden, but the tax credit has more bang for its buck compared to the deduction. You should always prove your ability to take advantage of deductions and credits, but because credits have a more tangible impact on tax due, due diligence is required to claim them. Documentation is crucial to proving that you qualify for these, and if ever you are audited by the IRS while taking a tax credit, you must provide proof of eligibility or there will be consequences, and they are steep.

If you’re ever in doubt about whether you’re filing your return properly, consult a tax professional. If for no other reason than peace of mind, the cost to hire your tax filing out is well worth it.

Tree City Tax is accepting new clients for the upcoming filing season, including small business returns. You can book a consultation by calling at (330) 539-4231. Small businesses that schedule a consult before the end of the year reduce their likelihood of filing an extension.