How to fix an error on your individual income tax return

Does this sound familiar?

• You filed the return.
• You cashed the refund check, or you wrote out the check for the taxes you owed.
• When you were filing all of your tax paperwork you discovered you left something off of your return, or you received a notice from the IRS.
• You panicked.

Good news. There is no need to panic. File an amended return. If your CPA completed your return, call your CPA and ask him or her to amend the return. If your return is simple, you can probably do it yourself.

What you will need
Whether you prepare the amended return yourself or send it to your CPA, you will need a few things before you can get started.

• A copy of your return and instructions for the forms. (If you need prior year forms and instructions, you can call 1-800-TAX-FORM (1-800-829-3676). You can also download them from http://www.irs.gov/.
• Form 1040X and instructions (Do not simply re-file a new 1040, 1040A, or 1040EZ!)
• Any additional supporting documents
• Any letters or notices you received from the IRS

How to get started
The first step is to organize your documents. It is a good idea to group your documents into categories such as income, deductions, or credits. You’ll want to separate out documents that go with specific schedules. Once you have done that review the original instructions for the forms you filed. This should help you be certain that you understand the changes that you want to make.

The 1040X is a multi-purpose form. Taxpayers have many reasons for amending returns. This means that you may not need to complete all of the lines on the form. Be sure to check the instructions.

The simplest way to make your changes is to make notes in the margins of your original return. Once you have made all of your changes and reviewed them, you can enter the changes onto the Form 1040X. If you use tax software, be careful to follow the directions provided by the software company. Typically you will make a copy of the original file and modify the copy instead of working on the original. The software will also have an option to prepare an amended return.

Once you file the amended return, file it and all of your supporting documents with your other important papers. If you have a CPA, you may also want to send a copy of the amended return to him or her to keep in your files.

Deadlines
File Form 1040X only after you have filed your original return. It is important to realize that the interest and penalty clock rarely stops ticking. If your changes result in a higher tax liability, then you should file an amended return and pay the tax as soon as you possibly can so that you can avoid additional penalties.

If your changes result in a lower tax liability, then you may be due a refund. Generally, for a credit or refund, you must file Form 1040X within 3 years (including extensions) after the date you filed your original return or within 2 years after you paid the tax, whichever is later. There are some exceptions to this time limit for people who are unable to manage their own affairs. Check with your CPA or review Publication 556 Examination of Returns, Appeal Rights, and Claims for Refund

Small business help from the IRS

Did you know that the IRS offers free online presentations and webinars? Check out the IRS Video Portal for

• Archived versions of live panel discussions
• Archived webinars
• Video clips
• Audio archives of tax practitioner phone forums

The portal offers a wealth of material for individuals, small businesses and tax practitioners.

Click on the Small Business tab, and you will find a list of topics. The list below describes some of the material available in the various areas.

• Business Expenses: Includes a summary of the 2009 law change affecting net operating losses and a video on home office deductions.
• Business Income
• Changing Your Business
• Disaster Information
• Employers: Information about payroll, hiring family members, required taxes, and similar topics.
• Filing/Paying Taxes
• Forms:
• Post-Filing Issues: If you have questions after filing, this is a place to learn about letters and notices, examinations, collections, offers in compromise, and other topics.
• Resources
• Retirement Plans: This section contains information about retirement plans for small businesses. The topics include funding and benefit restrictions, SEPS, and more.
• Scams & Fraud: This includes several overviews that can help keep you from being a victim of a scam or a fraud.
• Small Biz Workshop: "The Virtual Small Business Tax Workshop is composed of nine interactive lessons designed to help new small business owners learn their tax rights and responsibilities."
• Starting a Business: Includes a variety of videos on topics such as record keeping and Schedule C requirements.

Is free Wi-Fi a good thing?

Have you noticed all of the signs advertising free Wi-Fi lately? Bookstores, fast-food chains, coffee houses, restaurants, and oil change shops are among the places offering free access to the Internet. I suppose this is evidence that the world is becoming more connected, and there is little doubt that people who feel a need to be connected 24/7 are comforted by ubiquitous wireless access, but is it a good thing? Is it good for your business?
Before answering those two questions, ask yourself two other important questions.

• Does adding Wi-Fi increase your value to your customers?
• Does adding Wi-Fi contribute to your bottom line?

Adding value

Whether Wi-Fi adds value is not a simple a question. Consider the many coffee shops and restaurants that have added Wi-Fi hotspots. The access is not secure, and it is often slow. Even so, customers that use their computers see value in having Internet access. However, what about the other customers? Does a room full of people typing away on computers or using mobile devices provide the atmosphere that they seek? Do they resent not being able to find a place to sit and enjoy their visit because the tables are full of people who have long since finished their coffee but are still working on their computers? This is probably not a problem at fast-food establishments because customers value speed and because other cues such as decorating schemes and uncomfortable furniture encourages them not to dawdle.

What about other types of businesses? Do you run a business that requires people to wait? Unlike restaurant patrons, customers waiting for an oil change may not expect comfortable ambiance. (The coffee in most car repair waiting rooms is hardly drinkable.) Adding Wi-Fi might help customers turn down time into productive time.

The key is to understand your customers and your market.

The bottom line
It does not cost much to set up a Wi-Fi hotspot. Monthly Internet access charges, even for high volume business use, could be under $100. Wireless routers are also not expensive. If providing a hotspot increases sales, then it is probably a good idea. In the last example above, a car repair shop, it might be reasonable to assume that customers would come to the shop instead of a competitor's because of the hotspot. It is easy to see how the adding a hotspot increases customers' perceived value and how that could lead to increased profits.

Restaurants or coffee shops are different though. Most of these businesses depend on a constant flow of customers purchasing at least a minimum amount of something. Adding a hotspot encourages customers to linger. This means that tables do not turn over as quickly. If keeping tables occupied increased sales, that would be fine, but that is usually not the case. In addition, customers that are turned away or have to wait a long time are not likely to be satisfied customers. In this case, adding Wi-Fi might reduce sales.

The bigger picture
The topic of this post was Wi-Fi, but it could just as easily have been about any number of business decisions. Here is an example using the auto industry.

Should a luxury car company introduce a smaller economy car? Cadillac introduced the Cimarron, which Time Magazine named one of The 50 Worst Cars of All Time. BMW introduced the Mini Cooper to much acclaim. What was the difference? BMW understood its market and introduced a sporty car with an interesting history. It leveraged the brand and extended the product line. BMW added value and incrased the bottom line. Cadillac stuck a label on a moderately popular Chevy and decided that charging a high price would make it a luxury car. This damaged the Cadillac brand, decreased customer value, and hurt the bottom line.

What this all really means
Finding new ways to meet customer needs is always a good idea. Creativity and innovation are good things, and businesses that are always looking for ways to meet customer needs are probably going to be successful. Before they can do that though, they must understand their business and their customer. They've also got to ask themselves two questions.

• Does this increase your value to customers?
• Does this contribute to the bottom line?

Book Review: Let My People Go Surfing: The Education of a Reluctant Businessman

Let My People Go Surfing: The Education of a Reluctant Businessman
By Yvon Chouinard

Yvon Choinard is the founder and moving force behind Patagonia. This book is his story. Most people come to think of business books as "how to" books. We learned how to manage in The One Minute Manager. We learned how to evaluate business in, The Balanced Scorecard, and we learned how to emulate success with, In Search of Excellence. We could even learn to Swim with the Sharks Without Being Eaten Alive. For those interested in the people behind the businesses, there are plenty of biographies. Business people looking for advice from the past are even exploring books such as The Art of War and The Prince.

Let My People Go Surfing: The Education of a Reluctant Businessman does not fit neatly into any of those molds. The book is part biography and Choinard's life is fascinating. As a child, he moved from Quebec to Southern California. He spoke little English, and the family had little money. The narrative includes interesting stories about childhood challenges, and in time we learn how he became a climber. Choinard did not really start out to build a business. He started out trying to develop better climbing gear and trying to support his hobby. He sold his equipment out of the trunk of his car!

The book is a story about building a business. Choinard talks about the challenges of growing a business. Some of the challenges were formidable. The equipment his company produced was designed for specific uses by people that knew what the equipment was and how to use it. Even so, that did not prevent product liability lawsuits, and Choinard writes about his legal difficulties. The approach is forthright, and he candidly talks about the challenges he faced and how he went about addressing them. He spends as much time describing decisions that did not work out as he does those that did.

The book is also a story about business philosophy. Choinard and Patagonia operate according to a set of core beliefs. Their customer focused, highest quality, product driven practices are derived from these beliefs. The three general guidelines Patagonia has for promotion demonstrate this.

1. Our charter is to inspire and education rather than promote.
2. We would rather earn credibility than buy it. The best resources for us are the word-of-mouth recommendation from a friend or favorable comments in the press
3. We advertise only as a last resort.

Patagonia demonstrates that it is possible to be successful and to also embrace "social responsibility." The company emphasizes renewable resources and sustainability. It works hard to understand and meet employee needs. For example, Patagonia was one of the first employers to offer employer sponsored day care. One of the reasons for this is that Patagonia also recognizes that its employees are its greatest resource.

If you are looking for some new ideas about business, and you want something other than the usual business book. Check out Let My People Go Surfing: The Education of a Reluctant Businessman.

Why your customers buy – Understanding the value proposition

One of the key things for businesses to understand is why their customers buy their product. Statements such as the following ones are meaningless.

• We are the best at what we do.
• We give great service.
• We have a great product selection.
• We offer a great value.

The first two are meaningless because they are vague. Your business may be the best, and it may be great, but what is it that you do? What are your customers purchasing? Another important problem is that they are focused on the business. The next two are slightly better because they begin to describe the products. Where they miss the mark is that they are not specific, and they are not focused on the customer. If this sounds familiar, it is because companies use the same concepts to develop their brand strategies.

A value proposition is a statement explaining why a customer should buy a product. Good value propositions articulate both the costs and the benefits of purchasing a product. For example, assume that you sell cars. What are you actually selling? Are your customers purchasing reliable transportation? Are they seeking a status symbol or making a statement? Do they want comfort and luxury? Are they looking for high performance? Mercedes and BMW are both German luxury that command a premium price. However, the Mercedes emphasizes luxury and the BMS emphasizes performance. Mercedes and BMW have different value propositions. At the other end of the price spectrum, Ford and General Motors both offer more affordable products, albeit without the performance features and without the luxury. This too is a different value proposition and a different set of customers. Companies that ignore their value propositions do so at their peril. Cadillac seriously damaged its brand when it introduced a small relatively inexpensive car hoping to attract economy minded buyers because buyers no longer automatically assumed that Cadillac meant large comfortable car and status.

Restaurants provide good examples of different value propositions too. Consider the difference in fine dining establishments, family restaurants, and fast food restaurants. Consider the values that customers might seek:

• Fast, low cost
• Family friendly, budget oriented
• Leisurely, elegant, cozy, gourmet, price is not a big factor

Is it pretty obvious which set of values belongs to which market segment? Would McDonalds be successful if it dimmed the lights and sold $25 steaks? Would Ruth's Chris be successful if it introduced value meals?

Remember when crafting a value proposition, customer value is not just about low price or the product. Customers are buying what the product provides. For example, people shopping for jewelry can make their purchases in many places from discount stores to department stores to jewelry stores. If it was all about price, then Tiffany & Co. would not be in business. Instead, the Tiffany Blue Box is a status symbol. Tiffany & Co.'s value proposition says exactly what they do.

Since 1837, Tiffany & Co. has been the world's premier jeweler and America's house of design.

That is not to say that prices do not matter. Wal-Mart's value proposition is:

Everyday low prices

Price does matter. The trick is to figure out how it matters. If your product is a commodity, then value means low prices. If your product is status, then high prices may indicate value. This introduces another part of the value proposition. What exactly is the customer buying? Obviously if the customer is purchasing a computer, that is what the customer is buying. But what does that mean? Is the customer buying the box or the components? The customer is purchasing the ability to store and manipulate data. The customer is buying reliability. If you are selling televisions, the customer is not really interested in the device. The customer wants to watch TV. The customer is buying the ability to do that with vivid color and great sound. The customer is buying a viewing experience. If you are selling cars you are either selling transportation or you are selling a driving experience. That is why BMW advertises its value proposition as:

The ultimate driving machine

Even this blog has a value proposition. It is to help you grow your business by giving you useful information and sharing ideas. So now that you understand the idea, go write your own value proposition. Remember to answer these two important questions.

1. What exactly is the customer purchasing? Remember, their goal is not just to own the product; their goal is to get what the product provides. That could be a lot of things.
2. Why is the customer buying it?

How to calculate estimated taxes

If you owed tax additional tax this year, it is possible that you should pay estimated taxes. If you are self employed it is very likely that you should pay estimated tax. This is what the IRS has to say about the topic in Publication 505.

General Rule

In most cases, you must pay estimated tax for 2010 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2010, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:

• 90% of the tax to be shown on your 2010 tax return, or
• 100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.

You can use a worksheet to make a more accurate calculation. If all of your income is subject to withholding, you probably do not need to pay estimated tax. You will want to review your withholding with your employer.

You do not have to pay estimated tax for 2010 if you meet all three of the following conditions.

1.  You had no tax liability for 2009.
2. You were a U.S. citizen or resident alien for the whole year.
3. Your 2009 tax year covered a 12-month period.

 There are special rules for farmers, fishermen, certain higher income taxpayers, aliens, and estates and trusts.

• Farmers and Fishermen
• Higher Income Taxpayers (The percentage of 2009 AGI changes from 100% to 110%.)
• Aliens (Resident aliens should refer to Publiciation 505. Nonresident aliens should review Publication 519 for more information about Form 1040-ES (NR))
• Estates and Trusts (use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.)

Figuring out estimated tax

If you are self employed it is very likely that you should pay estimated tax. This is what the IRS has to say about the topic in Publication 505.

General Rule
In most cases, you must pay estimated tax for 2010 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2010, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:

• 90% of the tax to be shown on your 2010 tax return, or
• 100% of the tax shown on your 2009 tax return. Your 2009 tax return must cover all 12 months.

You can use a worksheet to make a more accurate calculation. 

You do not have to pay estimated tax for 2010 if you meet all three of the following conditions.

1. You had no tax liability for 2009.
2. You were a U.S. citizen or resident alien for the whole year. 
3. Your 2009 tax year covered a 12-month period.

There are special rules for farmers, fishermen, certain higher income taxpayers, aliens, and estates and trusts.

• Farmers and Fishermen
• Higher Income Taxpayers (The percentage of 2009 AGI changes from 100% to 110%.)
• Aliens (Resident aliens should refer to Publiciation 505. Nonresident aliens should review Publication 519 for more information about Form 1040-ES (NR))
• Estates and Trusts (use Form 1041-ES, Estimated Income Tax for Estates and Trusts, to figure and pay estimated tax.)

Need tax help? Ask the IRS. Really.

People love to hate the IRS. It is a government bureaucracy. It collects taxes. It enforces tax laws. (Congress writes the laws, but that is another topic.) It makes mistakes. What is there to like?

Actually there is a lot to like. The IRS’ mission statement is to, “Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” That is a tough job. According to the IRS:

This mission statement describes our role and the public’s expectation about how we should perform that role.

• In the United States, the Congress passes tax laws and requires taxpayers to comply.
• The taxpayer’s role is to understand and meet his or her tax obligations.
• The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share.

One thing the IRS does very well is provide information, lots of information. Sometimes the information is overwhelming. Sometimes it is contradictory. Sometimes it is late. (In defense of the IRS, it promulgates rules and writes instructions according to laws passed by Congress. That has a lot to do with conflicting rules and with delay. For good examples of this, read up on the AMT and the Estate Tax.)
 
Another thing the IRS does well is make it easy to get help. You can call, write, e-mail, fax, or even stop by a local office. If that does not get you the help you need, you can even contact the Taxpayer Advocate Service. (If you have ideas about how to make the process better, the IRS even has a way for you to provide feedback and submit ideas for improvement, the Taxpayer Advocacy Panel.)

Here are five ways to get help from the IRS.

1. Call the IRS: (800) 829-1040
2. Call the IRS.gov Web Site Help Desk: United States and Canada (800) 876-1715 / International (319) 464-3291
3. E-mail the IRS.gov Web Site Help Desk:  irs.gov.website.helpdesk@speedymail.com
4. Check out the IRS.gov Frequently Asked Questions (FAQ) page: http://www.irs.gov/faqs/index.html  
5. Stop by your local office or Taxpayer Assistance Center. Click here to find out how to contact your local Center. http://www.irs.gov/localcontacts/index.html  

For other help, check out the directory at http://www.irs.gov/contact/index.html