How to Know You Are at Risk for a Major Tax Penalty

If you are a taxpayer, more than likely you are worried about whether or not you will receive a tax penalty once you file your tax return. Therefore, today we are discussing how you can know you are at risk for a major tax penalty.

You Did Not Take Out Distributions

The IRS will hit you with a large tax penalty if you fail to take distributions from your various retirement accounts when you turn 70 ½ or when you go into retirement, whichever occurs later. In the event that you do not do so, the IRS is taxing you at a 50% rate on all of the money that you should have withdrawn. Think of this as one of the largest tax penalties that you will ever encounter.

How Long Do You Have to Take These Distributions to Avoid Penalties

It is suggested that at the latest you do it the week before Christmas. This is because you cannot wait until the last day of the year since the markets close early and once Christmas Eve comes in there is going to be so much going on.

Bottom Line

The major tax penalty that taxpayers will experience this tax season is the penalty they are hit with for not taking out distributions. Filing late and not paying estimated taxes are other penalties yet they have nothing on this one. Therefore, if it is time for you to take out your distributions make sure you do so soon.

We are a Bellevue CPA firm with meeting locations in Bellevue! Call us at (425) 483-6600 for a tax consultation!

How to Estimate How Much Your Tax Refund Will Be

It is not uncommon for taxpayers to want to know how much their tax refund is going to be before they file their taxes. Today, we are going to discuss how to estimate how much your tax refund will be.
Use a Tax Refund Calculator
One of the easiest and quickest ways for you to estimate how much your tax refund is going to be is to use one of the free tax refund calculators available throughout the web. You will have to enter various information to receive and estimation but it will give you an approximate number to keep in mind.

Compare Your Tax Situation from the Previous Year
If your tax situation has not changed much from the previous year, you can expect to receive a return amount that is in close proximity to the amount that you received previously. However, if you have had changes to your tax situation it may be best to use a tax refund calculator so you can have an idea of how much money you can expect.

Read our article, “Myths About Income Tax Deductions” Tax-Deductions



Bottom Line
Keep in mind that when you are given an estimation of your tax refund that it is an estimation and not a set in stone amount. Therefore, you should never spend money based on an estimation that was provided to you or you could find yourself in a financial crisis if the estimation was not accurate and you end up receiving less money than what you originally expected. The only for sure way to know how much your tax refund is going to be is to file your taxes.

If you liked this blog post, be sure to take a look at our Shoreline CPA blog post: “Three Tax Changes That You Need to Be Aware of for 2015”

Remember we’re a Seattle and Bellevue CPA firm! Take a look at our Seattle CPA profiles!

Disadvantages of the Fair Tax Act

This is the third article on the Fair Tax Act. This week we discuss the disadvantages of the bill.

You can read the previous two articles here and here.

Enjoy this week’s blog post from Bellevue CPAs!

Critics of the system contend that those who earn no income and draw on their savings and other assets for living expenses will experience little or no benefit. The initial generation of those in this position will end up taking it from both sides as they paid income tax during their working years and now would pay sales tax during their retirements. Furthermore, since at least the majority of states would in all likelihood follow suit and change their tax systems as well, the effective tax rate could climb as high as 45%. And if certain items such as food or healthcare were excluded from the tax, the rate on remaining goods and services could conceivably rise another 20%!

There would, of course, also be the small matter of establishing another governmental agency to oversee this system. There is still some question of how exactly it could be implemented and enforced, and many doubt the ability of any agency to be able to adequately accomplish this. Advocates tout that even criminals would have to pay their share of taxes through their purchases of retail goods, but this element of society will obviously not be reporting the dealings they have amongst themselves.

Perhaps the biggest strike against the Fair Tax comes from academic research that suggests that 9 out of 10 taxpayers would pay more taxes under the Fair Tax system than they do now. Although it will affect the different economic layers of society somewhat differently, it would seem that the wealthy would end up paying less tax while the upper middle class would be hit the hardest. And, of course, all of the professionals who have spent years learning our current tax laws will have to find a new way to make a living.

Ultimately, we would simply have to enact the Fair Tax in order to see just how it would really play out. There are several variables here that are basically impossible to predict, and the risk that comes with uncertainty may be enough to prevent its creation. If you decide to vote for this proposition, be sure that you have as clear an understanding as possible of how it will affect you.

Benefits of the Fair Tax Act

This week’s post expands on the Americans for Fair Taxation post from last week with a discussion of a few of the benefits of the Fair Tax Act.

This tax system differs from many of the other flat-tax concepts that have been presented because it completely replaces our current system, while other options will retain at least a portion of our present structure. It is also designed to draw only the same amount of money out of the economy as what is due to the government without retaining any in and of itself.

One of the main benefits that Fair Tax proponents claim their system will provide is massive economic growth. Because the tax will only apply to consumer goods and services, wealthy investors and institutions will be motivated to invest in tax-free havens such as light and heavy industries, production facilities, charitable organizations and other avenues of commercial development that would create millions of jobs and develop our infrastructure. The tax system will be vastly simplified because we will not have to file any more income tax returns, which will lead to further savings because there will no longer be a need to fund the IRS.

Foreigners and other visitors from outside the country will also help to fund us with their retail purchases and could even provide financial equalization from illegal immigrants, since they would not be eligible to receive prebate checks. The system also promises to replenish the Social Security trust fund and provide citizens with greater freedom to choose how much tax they through their personal selection of goods and services.

Advocates of the Fair Tax have been quick to point out that Florida and Texas-two of the richest states in our country-use a state tax system that resembles their idea in several respects. England also experienced one of its most prosperous eras when it used a sales-based tax after the defeat of Napoleon.

Americans for Fair Taxation and The Fair Tax Act

fairtaxThe latest spate of scandals and cover-ups within the IRS has rekindled the cry by many for its replacement. Our current tax code is also hopelessly riddled with contradictions, loopholes and inconsistencies. One of the loudest voices calling for replacement and reform is the Americans for Fair Taxation, a group that advocates replacing the IRS with a consumption-based tax system that would assess a flat tax for citizens who purchase goods and services. This fledgling movement is known as the Fair Tax Movement, which has grown from grass-roots advocacy in 2003 to become a major lobby group that has also gained support at the state level.

If it is enacted, the Fair Tax will effectively sweep away our entire current tax system and bring an end to the IRS. The Fair Tax will completely replace all income, gift, estate, trust, corporate, inheritance and partnership taxes with a single sales tax at a uniform 23% rate that will be assessed on the purchase of goods and services which will be collected by retail merchants in the same manner as state sales taxes and administered by a new governmental agency. However, the tax does not apply to all types of goods and services; used goods and anything that is used to produce other goods will be exempt. Goods that are imported from outside the U.S. are also excluded from this levy. And while the rate of tax is uniform for all payers, the systems aids those who live at or below the poverty level by giving each household a “prebate” check each month that is equivalent to a twelfth of the amount that the government determines a family or person at that income level spends each month. This money is designed to reimburse the poor for what they will pay in taxes on the goods and services that they must buy in order to survive.

This is the first part of our look at this particular tax issue. Check back next week for more about Americans for Fair Taxation and The Fair Tax Act. We’ll be discussing a few of the pros and cons of this once upon a time grassroots movement. Remember Huddleston Tax CPAs are Bellevue CPAs. Get in touch with us!


Things to Remember When Filing Your Taxes

remember payroll taxesThings to Remember When Filing Your Taxes
Tax season is no one’s favorite time of year. Filing taxes can be stressful and difficult for those who are unprepared. This tax season make sure you are prepared by keeping these key tips to remember when filing your taxes is mind.
Ask Questions
Regardless of whether it is your first time filing taxes or your tenth, if you have questions about anything, you need to ask a tax professional. Each year tax laws change and if you are not up to date on them, it is possible that you could make an honest mistake that could result in a penalty or an audit.
Know the Tax Terms and Forms
Before filing your taxes, you have to be aware of the various tax terms and tax forms. Tax terms such as AGI, deductions, and credits are important to know as well as forms such as 1099, EZ forms, and W-2. Having knowledge of the tax terms and forms insures that you are preparing your tax forms correctly and are not overpaying in taxes.
Take Deductions and Credits
Deductions and credits are important to be aware of because they decide how much money you will pay to the IRS or how much you will get back. Not claiming tax deductions and credits, results in you not getting the most of your hard-earned money back or over paying in taxes. If you have a professional file your taxes for you, they should be up to date with the credits and deductions that you are eligible to receive.
Meet the Filing Deadline
April 15 is always the deadline to get your taxes filed. Therefore, since this date never changes you should always be prepared to have your taxes filed before this date. If you do not file your taxes by this date, you will be penalized. Even if you owe money and do not have it available to pay, you are still responsible for filing your taxes. After filing, the IRS will be happy to set you up on a payment plan so you can avoid having your income garnished.
Bottom Line
Filing taxes is something that has to be taken seriously. If you follow the tips that we have provided you with today in this article you will find filing your taxes to be easier.

Myths About Income Tax Deductions

Tax-DeductionsWith something as sensitive as your taxes, certain pieces of information naturally begin to spread like an urban legend over time. If you’re new to the world of freelancing and talk with a friend who has been freelancing for years, you may here something like “Don’t take a specific deduction because it’ll definitely get you audited” or something of that nature. By understanding more about these myths about income tax deductions you can begin to separate fact from fiction and will become much more comfortable with the concept of deductions in general.

The Home Office

One of the biggest myths about income tax deductions is that writing off your home office is a sure fire way to get audited. That may have been true in the past, but studies have shown that more people are working from home than ever before. The IRS no longer singles out people taking home office deductions for audits, if they ever did in the first place. What can get you audited with regards to this deduction, however, is failing to follow directions or not providing every last bit of relevant data. So long as you qualify for the deduction, you’ll be fine.


It’s common knowledge that if you operate a business and the profit from that business is outweighed by your expenses throughout the year, you’re entitled to write off a certain percentage of those losses as a deduction. The total amount changes depending on the type of business and how much money you make. One of the most prevalent myths about income tax deductions, however, is that you’re allowed to do this indefinitely.

In reality, the IRS is very strict about how long you can claim losses for a business on your income taxes before something has to change. If your business experiences losses for longer than five consecutive years, the IRS will definitely begin to take a closer look at your income taxes moving forward. At the same time, if your business is losing a huge amount of money each year for five years and it looks to continue to do so for the foreseeable future, it may be time to give something else a try anyway.

Thanks for reading our blog post! We’re a greater Seattle/ Bellevue CPA firm.

Calculating Estimated Payments Is Easier Than You Think

businessman thinkingOne tax-related issue that a large number of people deal with when they’re first starting out as freelance employees or 1099 independent contractors is the concept of estimated payments. For those unfamiliar, in a normal work environment your employer is taking taxes out of your check every week to send to the federal government. The employer usually takes a significantly larger amount of money than you actually owe out of each check, which is why some people get large refunds when income tax season rolls around. When you’re a freelance employee or independent contractor, no employer is taking taxes out of your check because you are your own boss. Instead of paying every time you receive income, the IRS only requires that you pay four times per year. These are called quarterly income tax payments.

The problem that many people run into has to do with accurately figuring out how much they owe at any one time. The income of a freelance employee can fluctuate wildly – some months will certainly be better than others. Many people get overwhelmed when trying to calculate these totals, especially since you can incur severe penalties if you don’t send 90% of the total balance due by your January payment. In reality, the process of calculating how much you owe is surprisingly simple.

Watch this video on all the different applications of a 1099 misc tax form:

If you’ve been freelancing for a few years, all you need to do is send one quarter of the amount of money in tax that you owed the previous year with each quarterly payment. If you owed $10,000 in taxes in 2013, for example, you can divide that number by four and send $2,500 with each quarterly income tax payment.

If you’ve only been freelancing for a year, the process of calculating how much money you’ll owe is still simple. Figure out the average amount of money that you make per week and multiply that number by 52. The number you arrive at will be the total amount of money that you expect to make during that calendar year. Don’t worry if your income continues to fluctuate throughout the year – even if you’re off by several hundred or even several thousand dollars, you’ll still come close to the 90% requirement by the time you make your fourth and final estimated tax payment in January.

  • If you need advice on how to hire a 1099 contract employee, take a look at our Landlord’s Tax Guide, and we’ll show you how.

Next, go online and look at the income tax bracket breakdowns for the year in question. Based on your income, you’ll be able to use those numbers to find out the total amount of money you’ll need to send when all four payments are combined. Once you have that total, divide that number by four to arrive at the total amount of money you’re supposed to pay with each quarterly payment.

If your income fluctuates wildly, you can also calculate each payment as it happens. Figure out the total amount of money that you made since your last payment using payment receipts or invoices. Using your tax bracket as a guide, multiply that number by the percentage of your income that you are required to pay for taxes. The number you arrive at is the total amount of money you’re supposed to pay for that single payment. Repeat that process every few months during the year as additional payments become due.

Thanks for reading our informative article on calculating estimated payments!

Remember Huddleston Tax CPAs is a greater Seattle area and Bellevue CPA firm give us a call at 425-483-6600!

Considerations in Purchasing a Dental Practice

It is a very important that you give yourself due consideration in deciding where to buy, how to go about it, and what kind of practice to purchase.

Do Not Rush into This

Pace yourself. You are building the foundation of your future. Where do you want to live, how responsive will the community be to your new practice, how much of a rapport do you already have with the community?

Choosing the Best Location

Where is it that you would like to live? You’ll want to be a big part of this community, so you’ll need to make sure it’s a good fit. Dentists who involve themselves in community events and organizations are usually successful as they are meeting people and networking all the while. A short to medium commute is an important consideration. Avoid a long commute and you’ll have the opportunity to spend that time with friends and family. That’s not a bad trade off.

What sort of community is the right fit for you and your family? Suburbs? Intercity? Rural? Let the location of your competition inform your decision. Will your spouse be able to find work? Will your kids end up in a school district that will nurture them and grant you piece of mind?

Determine the Ideal Practice for You

Consider: size and type, Are you interested in specialized dentistry practice, or a generalized dental practice. Who is your competition and is there room for your particular niche? Create a thorough business plan.

Seek an Appraisal

Have the business appraised with the help of a certified public accountant or valuation specialist. A professional with experience in this industry is preferable. This way you’ll gain a better perspective.

Assemble a Team of Professionals

Trying to save money by being completely self-sufficient is a poor decision when you plan on purchasing a dental practice. There are many areas where you’ll need and benefit greatly from the expertise of others. In the long-run, investing in advisors will save you a lot of trouble. Here are a few people you’ll need:

  • A CPA or accountant versed in aiding dentistry practices and other small businesses on remaining tax compliant and reducing tax burdens. You will want an accountant who can help you develop tax strategies. You’ll want a certified public accountant to advise you on how to structure your small business (S-Corp, C-Corp, LLC, PLLC, Sole Proprietorship).
  • A Bookkeeper who has familiarity in a bookkeeping software system like Quickbooks. A certified Quickbooks Advisor is a title bestowed upon a bookkeeper which says the person is certified by the manufacturer of Quickbooks (Intuit Corporation) as competent with the bookkeeping platform.
  • An attorney to review documents and legally protect your interests.
  • A consultant for your new dental practice could prove useful in helping you meet goals.
  • From the beginning, you should establish a relationship with a bank. Getting prequalified will help you gain a handle on how to put in a good offer and how much you can afford.
  • Your insurance needs will increase ten-fold once you’re a business owner. An insurance rep will assess the value of your business and evaluate risk to see exactly how much coverage you will have to have.
  • It is intelligent to seek the help of a mentor or business confidant of some kind, perhaps a veteran dentist who once went through the same process you’re going through now.
  • A marketing pro that knows online marketing.

Prepare. Be a researcher. Trial and error is not a reasonable strategy.

Tax CPA John Huddleston is the author of the Self-employment Tax Guide which is a free resource for small business owners and the self employed for tax saving strategies and tax filing requirements. Mr. Huddleston has a law degree and masters in tax law from the University of Washington School of Law. He has been a guest tax expert on the radio. He advises small businesses in the Seattle Bellevue Tacoma & Everett area on various tax and accounting issues. His firm, Huddleston Tax CPAs, also provides tax preparation service, quickbooks consulting, business valuation, general accounting and bookkeeping service. Profile information on CPA John Huddleston and the CPAs employed by Huddleston Tax CPAs is available at the profile tab. Seattle CPA John Huddleston is a frequent publisher of tax saving ideas.

Form 656: Offers of Compromise

Preparing Form 656 and Supporting Documentation in Seeking an Offer in Compromise

An Offer in Compromise (OIC) is a tax debt settlement offer provided by the Internal revenue service to taxpayers, either an individual or a business unable to manage their tax debt. There are certain strict criteria that determine who will be eligible to request the OIC. If you do satisfy these requirements, you’ll need to fill out Form 656 and submit a number of supporting documents to be considered for the offer.

Preparing Form 656

You need to fill out a Form 656 to file for an OIC in two circumstances. In the Doubt as to Collectability situation, there exists a reasonable amount of doubt over your ability to pay the full amount of your claims within the specified period. In the Effective Tax Administration case, your contention for a tax settlement is that paying the full amount of the dues will create economic hardship for you.

Now that you know the circumstances in which you will need to prepare Form 656, here’s what you should remember when completing the form

• Each person submitting the offer should provide social security numbers.

• You will need to give the names of both the persons if you are applying for a joint offer for joint liabilities. If you owe a joint liability and both you and the other party are submitting an offer, then do so on Form 656, just one single form. You might owe a liability, such as employment taxes for yourself and hold other liabilities, such as income taxes, with another person. If you are the sole submitter of this form, then you will have to list all liabilities on one of Form 656. In case both of you want to submit this application, then you have to include all tax liabilities on your Form 656 and the other person must show only the joint tax liability on their Form 656.

• You will have to include the relevant information In each field in the form.

• You will need to show the employer identification numbers of all businesses, except corporate concerns, that you own, either wholly or partly.

• If your claim to an Offer for Compromise is based on a Doubt as to Collectability, you need to also furnish a completed Form 433A if you are an individual taxpayer and Form 433B if you are a business taxpayer.

• If your claim to an Offer for compromise is based on Effective Tax Administration, then on top of submitting a Form 433B or 433A, you’ll also need to fill out the information in the “Explanation of Circumstances.” You may include additional bits of relevant information in separate sheets along with your social security and employer identification numbers.

• When filling out the total amount of your offer, you don’t include a sum that the Internal revenue service owes you or any of the amounts that you’ve already paid in taxes.

• All persons submitting the offer should sign the Form 656 and supply the date. They need also give the titles and names of authorized corporate officers, trustees, Powers of Attorney, and executors where requested.

• Be sure that you provide the name and if possible, the address of the Offer in Compromise preparer.

• You might want the IRS to get in touch with a a friend, a family member, or some other acquaintance to discuss your case so that they might understand your situation more fully. In that case, you need to tick the “Yes” box in the “Third Party Designee” field. Additionally, if you’d like a Certified public accountant, your attorney, or an enrolled agent to represent your case, you will have to furnish the 2848 Form and submit it along with your offer. to better the chances of your offer being accepted by the IRS. After you’ve compiled all the above-mentioned documents for submission, ensure that you make duplicates for personal records. Additionally, you might also submit documents that support your claim for this genuine offer.

Pay Attention to the Details

The application process for an Offer for compromise is a complicated process. Be sure to spend enough time on Form 656 and submit the entire set of supporting documents to improve your chances of getting approval on the offer.

Visit the offer in compromise guide at:
Seattle Business Valuation
Seattle Tax Debt Relief
Seattle Offer in Compromise

  • Huddleston Tax CPAs – Bellevue, WA
    Certified Public Accountants Focused on Small Business
    40 Lake Bellevue, Suite 100 Bellevue WA 98005
    (425) 273-6512

    Huddleston Tax CPAs & accountants provide tax preparation, tax planning, business coaching,
    QuickBooks consulting, bookkeeping, payroll, and business valuation services for small business.

    We serve: Sammamish, Kirkland, Mercer Island, Seattle, Redmond, Issaquah, and areas throughout WA.
    We have a few meeting locations. Call to meet John C. Huddleston, J.D., LL.M., CPA, Lance Hulbert, CPA, Grace Lee-Choi, CPA, Jennifer Zhou, CPA, or Jessica Chisholm, CPA. Member WSCPA.