Taxes

How To Get An Extension For Your Texas Franchise Tax Return

If you’re a Texas business owner, you’re probably well aware of the state’s franchise tax. This annual tax is levied on most businesses operating in the state, and it can be a significant financial burden.

Fortunately, the state does allow businesses to request an extension of time to file their franchise tax return. This can give you some much-needed breathing room if you’re having difficulty meeting the deadline.

Here’s what you need to know about getting an extension for your Texas franchise tax return.

The Basics

First, it’s important to understand that an extension of time to file your return is not the same as an extension of time to pay your taxes. If you owe taxes and you don’t pay by the deadline, you will be subject to late payment penalties and interest charges.

An extension of time to file simply gives you more time to prepare your return. As long as you file your return by the extended deadline, you will not be penalized.

How to Request an Extension

If you need more time to file your Texas franchise tax return, you can request an extension by filing Form 05-164, Application for Extension of Time to File Texas Franchise Tax Return. This form must be filed by the original due date of your return.

You can file Form 05-164 electronically or by mail. If you file electronically, you will need to provide a credit card or bank account information so that the state can process your payment.

If you file by mail, you must include a check or money order for the amount of taxes you expect to owe.

Once you have filed Form 05-164, you will have an additional four months to file your return. This means that if your original due date was May 15, you will now have until September 15 to file.

Keep in mind that this extension is only for the filing of your return. If you owe taxes, you must still pay by the original due date.

What if I Can’t Pay My Taxes?

If you can’t pay your taxes by the original due date, you can request a payment plan by filing Form 05-183, Application for Installment Agreement. This form must be filed by the original due date of your return.

Once you have filed Form 05-183, you will have an additional four months to pay your taxes. This means that if your original due date was May 15, you will now have until September 15 to pay.

If you’re unable to pay your taxes in full within four months, you can request an additional four-month extension by filing Form 05-184, Application for Extension of Time to Pay Texas Franchise Tax. This form must be filed by the original due date of your return.

If you’re still unable to pay your taxes after eight months, you can request an additional four-month extension by filing Form 05-185, Application for Extension of Time to Pay Texas Franchise Tax. This form must be filed by the original due date of your return.

Keep in mind that you will be charged interest and late payment penalties on any taxes that are not paid by the original due date.

Conclusion

If you’re having difficulty meeting the deadline for your Texas franchise tax return, you can request an extension of time to file. This will give you an additional four months to prepare your return.

Remember, an extension of time to file is not the same as an extension of time to pay. If you owe taxes, you must still pay by the original due date to avoid interest and late payment penalties.

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Tax time can be stressful for many people, for two reasons – the filing process itself and the knowledge that if you’d made different decisions the year before, you might be facing a smaller tax hit this year. Let’s explore ways to lower the stress level – and the tax burden – at this time of year.

Make the Process Easier

Getting organized and filing your return can be a chore. Even just pulling together your information to get started can be overwhelming. Here are a few tips to ease the process:

Organize Your Paperwork

The first step is to gather your information and receipts. I recommend you keep these in a paper or electronic folder organized by category. Your main categories should include:

– Business income and expenses, which can be exported from financial software such as QuickBooks.
– Personal income, from forms such as W-2s and 1099s.
– Rental and other income.
– Charitable deductions.
– Taxes paid on property, vehicles or purchases.
– 529 plan contributions and distributions.
– Investment income (dividends, interest, sale info).
– Retirement contributions or distributions.

Decide on Your Method

Next, decide whether you want to do your taxes yourself using an online tool or you should seek the help of a tax professional. If you have rental property, real estate investments or a complex investment portfolio, if you own a business, or if you don’t have the desire to take this on, it’s wise to turn to a professional.

Take Your Time

If you’re going to do it yourself, don’t try to rush through the task in one day. I find it’s best to break it up over a few days. Give yourself plenty of time to gather all of the information you need and complete the process.

Some years it takes until mid-February to get the necessary documents for your various investment holdings. For example, Vanguard issues tax documents for mutual funds much earlier than for funds on the brokerage platform. If you rush through your return and file early, you might inadvertently exclude some of your funds, forcing you to amend your return.

You’ll also want to take the time to review your return thoroughly for accuracy before you file.

Finally, save your return and all of the backup documentation in a safe place for at least three years in case you are audited.

Keep an Eye on Your Withholding

If your tax liability is too high or you’ll be receiving a large refund, consider adjusting your withholding. Also, try to determine how your income and deductions will change in the coming year so you can adjust further.

Lessen your tax burden

At tax time, it’s easy to see that decisions you made the year before have a major impact. Here are some things you can do that will pay off next tax season:

Max Out Your Retirement Contributions

Contributing the maximum to your retirement savings accounts is the simplest way to reduce your tax burden, but many people are not doing it. For 2015 and 2016, you can contribute 100% of your salary, up to $18,000, to your 401(k), with a $6,000 ‘catch-up’ for people 50 and over.

You can still contribute to a traditional IRA for 2015 up to the tax filing date, which is April 18. Check the IRS website to see if you’re eligible to deduct your IRA contribution based on your income. You can contribute $5,500 to an IRA with an additional catch-up of $1,000 for those 50 and over.

If you’re in a high tax bracket, say 28% or higher, consider increasing your 401(k) contributions, because these pretax contributions will reduce your taxable income. If you are in the 25% tax bracket or lower, consider increasing your contributions to a Roth 401(k) or contributing to a Roth IRA if you are eligible, as those contributions are made after taxes. The deadline for Roth contributions for 2015 is April 18.

With Roth plans, although you will be taxed on the income now, your investment will grow tax-free and you will be able to withdraw it without paying taxes, if you meet certain conditions. This can be a powerful way to avoid paying taxes on future income, especially if you are young and have time on your side.

Document Your Charitable Contributions

Make sure you have documentation for all cash and noncash donations. Make an itemized list for noncash items and their condition before you make the donation. Remember that you can also deduct mileage for your volunteer work.

If you have substantial charitable donations, say $10,000 a year or more, you might want to consider donating appreciated stocks or mutual funds. This can provide a triple tax benefit – you can deduct the amount of the donated securities, you can eliminate future capital gains on the sale of the securities, and you can buy back the same shares at the higher current market value, resulting in a lower tax bill when you sell the securities in the future.

Track College Expenses

Deduct only qualified expenses and make sure that any distributions from your 529 college-savings plans coincide with expenses incurred in the same calendar year. I use an Excel spreadsheet to keep track of this for my son’s education. It itemizes tuition, books, and room and board fees offset by scholarship amounts.

Don’t forget to deduct your annual contributions to your state 529 if you get a state tax break. I often notice that clients forget to tell their CPA about these contributions or forget to include this info when they prepare their own return. Since South Carolina, where I live, provides a dollar-for-dollar tax deduction for contributions to the Future Scholar 529 plan, this results in a 7% instant return on your money, for example. (I recommend the Future Scholar Direct program, which is no-load and includes index funds with low expense ratios.)

Optimize Your Investments

Capital gains: Review the capital gain distributions for your funds to see if you can improve the tax efficiency of your investments. It may make sense to sell one of your funds if it continually throws off high capital gains. Replacing an active high-expense fund with a more tax-efficient index mutual fund or exchange-traded fund will reduce your taxes and will likely perform better over time due to lower expenses.

U.S. bonds: If you have taxable bond funds in your after-tax (non-retirement) accounts, don’t forget to adjust for U.S. government bond income. You can contact the fund, or it may mail you a sheet that breaks down income by source. The interest from Treasury bills and bonds as well as U.S. government agency securities is taxable at the federal level only.

Municipal bonds: Likewise, adjust your municipal bond dividends and interest for ‘in state’ income as you are not taxed on municipal bond income from your state. This should also be provided by the mutual fund or broker where the bonds are held.

Foreign mutual funds: If you invest in foreign mutual funds, you can take a foreign tax credit or deduction for income, such as dividends, that you received from outside the U.S. The tax credit is generally more beneficial than the deduction. Contact the mutual fund company to find out the percentage of the dividends that are from foreign holdings and adjust accordingly.

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End of Year Checklist- Don’t Forget Your RMDs

If you are over 70 1/2 and have retirement accounts or you have an inherited IRA, you will likely need to take RMDs, or Required Minimum Distributions, by the end of the year.  Failure to do so would result in a penalty of 50% of the amount not taken.

Post 70 ½ RMDs

Once you reach age 70½, you must withdraw at least a minimum amount each year from your tax-deferred retirement savings accounts. This includes your IRAs and any qualified retirement accounts such as 403bs, 401ks, etc. Your annual RMD for 2015 is equal to your retirement account balances as of December 31, 2014 divided by your life expectancy factor according to the Uniform Lifetime Table. (If your spouse, however, is more than ten years younger than you, you will need to use the Joint Life and Last Survivor Table.

Note that if you are still working full time at age 70 ½ you can delay your RMDs for your current workplace retirement accounts until April 1 of the calendar year following the year you retire.  Click here for more information and assistance with your calculation.

Inherited IRAs

You must take RMDs by Dec 31st of the year after funds were inherited.  To determine your RMD for this year you will need to take the balance from December 31st, 2014 and divide by the factor (which is age based) on the single life expectancy table.

Here is the table for RMDs for inherited IRAs and here is a calculator to aid with the calculation

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How My 18 year Old Son’s Summer Internship Landed Him in the 25% Tax Bracket

Remember your first paycheck and how shocked you were when you noticed how much was being taken out for taxes?  My son had the shock of his life when he saw his first paystub for his summer internship at Textron, Inc.   Although he instructed his HR department to withhold the minimum amount out of his paycheck due to his small amount of income (he is getting paid $16.50/hr.), his effective Federal tax rate was well over 20%.

It turns out that his housing and relocation subsidy of $2,500 had an automatic withholding of 25%.  Per federal tax law, if you have any supplemental wages, outside of your regular salary, the federal government can withhold taxes at a different rate.  Supplemental wages generally include commissions and bonuses, sick leave payments, reimbursements of nondeductible moving expenses, and taxable fringe benefits.  There are two methods of withholding, but if the supplemental wages are paid separately, they may be taxed at the IRS flat supplemental rate which is 25 percent. Supplemental wages are also subject to Social Security, Medicare, and FUTA taxes.

So in my son’s case, since the company paid him a lump sum of $2,500 for relocation expenses, that amount had 25% automatically deducted from his first paycheck.  Going forward, he will have a lower amount withheld, and then he will get a large refund when files his 2014 tax return.  My son was not happy that he would have to wait for the tax refund, but he will ultimately get most of this money back in the end.  For more info on supplemental wages click here.

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Hey.com Complains about Apple’s Attitude

Basecamp CTO David Heinemeier Hansson, developer of the Hey.com e-mail service, calls Apple’s behavior like a thug. What caused it?

Hansson’s statement came after Apple refused to fix a bug and forced Basecamp to give Hey customers the option to subscribe to the service via the App Store.

“I was very surprised at the threat. I think it should be disguised as a threat disguised by eufinism or the like,” Hansson said.

Apple’s Strict Rules

Apple does require application developers on the App Store to follow strict rules. Including requiring developers to provide in-app purchase options if they want to offer content that could previously be purchased through other platforms.

Hey.com is an email service that was recently launched. They offer alternative Gmail services at a cost of USD 99 each year. But now, they only provide subscription options via the site.

The Problem

Apple originally gave this application permission to display on iOS. But according to Hansson, when Hey asked for a bug fix, the request was rejected because they didn’t provide the in-app purchase option through the App Store, and then the Hey app update was rejected by Apple.

“Like the mafia, they contacted us by phone. Stating that, first, they broke our window by refusing a bug fix request). Then, without euphemism (a more subtle phrase), they said they would burn our shop (by removing our application), unless we pay, “Hansson wrote on his twitter.

Reported by Detik website, most developers make the in-app purchase option through the App Store the last resort for monetizing their services. Because Apple applies a ‘tax’ of up to 30% for every digital purchase transaction made through the App Store.

An example is Netflix, which has no longer offered a subscription option through the App Store since 2018. Then there is also Spotify who claims to have to increase its service subscription fees to cover their lost income from Apple’s tax deductions.

There are still many more developers who complain about Apple’s tax scheme, and Apple is still unmoved by this rule, even though they actually provide relief for a number of applications or free them from the tax.

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Remember your first paycheck and how shocked you were when you noticed how much was being taken out for taxes?  My son had the shock of his life when he saw his first paystub for his summer internship at Textron, Inc.   Although he instructed his HR department to withhold the minimum amount out of his paycheck due to his small amount of income (he is getting paid $16.50/hr.), his effective Federal tax rate was well over 20%.

It turns out that his housing and relocation subsidy of $2,500 had an automatic withholding of 25%.  Per federal tax law, if you have any supplemental wages, outside of your regular salary, the federal government can withhold taxes at a different rate.  Supplemental wages generally include commissions and bonuses, sick leave payments, reimbursements of nondeductible moving expenses, and taxable fringe benefits.  There are two methods of withholding, but if the supplemental wages are paid separately, they may be taxed at the IRS flat supplemental rate which is 25 percent. Supplemental wages are also subject to Social Security, Medicare, and FUTA taxes.

So in my son’s case, since the company paid him a lump sum of $2,500 for relocation expenses, that amount had 25% automatically deducted from his first paycheck.  Going forward, he will have a lower amount withheld, and then he will get a large refund when files his 2014 tax return.  My son was not happy that he would have to wait for the tax refund, but he will ultimately get most of this money back in the end.  For more info on supplemental wages click here.

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