Taxes

If you haven’t already completed and filed your income taxes, you are getting items together to do so.  You anticipate a refund, so why not get your taxes done and get the refund? 

Even though the IRS issues most refunds in less than 21 days, it’s possible a taxpayer’s refund may take longer. Several factors can affect the timing of a taxpayer’s refund after the IRS receives their tax return. Here are a few things taxpayers should keep in mind if they are waiting on their refund but hear or see on social media that other taxpayers have already received theirs.

• The IRS and its partners in the tax industry continue to strengthen security reviews. This helps protect against identity theft and refund fraud. This means some tax returns need additional review, taking longer to process them.
  
• It can take longer for the IRS to process a tax return that has errors. Therefore, taxpayers should consider filing their return electronically. The e-file software walks the taxpayer through the steps of filling out the return and does all the math.
  
• E-file software can also help make sure a tax return is complete. This is important because it can also take longer to process an incomplete return. The IRS contacts a taxpayer by mail when more info is needed to process the return.
  
• By law, the IRS cannot issue refunds for people claiming the earned income tax credit or additional child tax credit before mid-February. The law requires the IRS to hold the entire refund. This includes the portion of the refund not associated with EITC or ACTC.
  
• It can take banks or other financial institutions time to post the refund to the taxpayer’s account. It can take even longer for a taxpayer to receive their refund check by mail.

The tax season is officially upon us and if you anticipate receiving a refund, you want to get that refund as quickly as possible.  The best way to receive your refund is to have it directly deposited into your checking or savings account.

It is simple, safe and secure and can be deposited into as many as three different accounts, including an Individual Retirement Account, if desired.  Eighty percent of taxpayers use this method, which is used by other federal agencies such as Social Security and the Veterans Administration.  This avoids the possibility of a lost or stolen check or a paper check being returned to the IRS as undeliverable. 

So, how do you use this preferred method for refunds?  When your return is prepared either by yourself or by a tax preparer, the selection of the direct deposit method for the refund is made on the return and the account and routing numbers are provided.  However, make certain that the account and routing numbers are accurate or you may be giving a gift of your refund to someone you don’t know!  Seriously, you should only have your refunds deposited into accounts that are in the name(s) of the taxpayers on the return generating the refund. 

Another handy option is that a portion of your refund can even be used to purchase up to $5,000 in U.S. Series I Savings Bonds.  If you select this option, you must use IRS Form 8888 – Allocation of Refund (including Savings Bond Purchases), if a paper return is filed.

Bear in mind that no more than three electronic tax refunds can be deposited into a single financial account or prepaid debit card. Taxpayers who exceed the limit will receive an IRS notice and a paper refund will be issued for the refunds exceeding that limit.

All taxpayers are encouraged to file their returns electronically. This is a safer, more efficient manner to file.  Plus, you get the added bonus of typically receiving any refund with 21 days from date of filing as compared to waiting approximately six to eight weeks if you file a paper return. 

Refunds can be tracked using “Where’s My Refund?” on IRS.gov or by downloading the IRS2Go mobile app.  “Where’s My Refund?” is updated once daily, usually overnight, so there’s no reason to check more than once per day or call the IRS to get information about a refund. You  can check “Where’s My Refund?” within 24 hours after the IRS has received your e-filed return or four weeks after receipt of a mailed paper return. “Where’s My Refund?” has a tracker that displays progress through three stages: (1) Return Received, (2) Refund Approved, and (3) Refund Sent.

Regardless of the method used to prepare your taxes, electronic filing vastly reduces tax return errors, as the tax software does the calculations, flags common errors and prompts for missing information.

Happy tax preparation.

HAPPY NEW YEAR!

Thoughts of a new year also bring thoughts of taxes.  So much for the festive holidays when we begin to think about taxes. 

So, why do we have to pay taxes?  Some may claim taxes are illegal.  False and misleading statements and advice may be heard.  However, if you look at the United States Constitution, it clearly states in Article 1, Section 8 that “The Congress shall have the Power to lay and collect Taxes, Duties, Imposts and Excises to pay the Debts and provide for the common Defense and general Welfare of the United States.”.  And the Sixteenth Amendment to the Constitution states that “The Congress shall have the power to lay and collect taxes on income, from whatever source derived without apportionment among the several States, and without regard to any census or enumeration.”.  As a result Congress delegated the responsibility of administering the tax laws to the IRS.  

Here are some myths that have formulated over the years:

• Filing an income tax return violates our rights against self-incrimination, privacy, involuntary servitude and moral or religious beliefs. 
• The filing and paying tax is voluntary because I am not a government employee or a resident of a sovereign state.
• Certain ethnicities are entitled to a special tax as reparations for slavery and other oppressive treatment.
• Establishing a business trust to shelter your income and assets will avoid taxes.
• Establishing a trust will allow you to reduce or eliminate your tax liability.

If you believe in any of the above myths, please think again.  It has been consistently upheld in courts that filing a tax return does not incriminate an individual or invade their privacy.  We are each responsible for filing a tax return when required and paying the correct amount of tax.  Only when income is below a certain level is one not required to file a return.  Our tax system is based on self-assessment and reporting and compliance with tax laws is mandatory.  The establishment of a foreign or domestic trust for the sole purpose of hiding income and assets and avoiding taxation is illegal and does not absolve you from tax liability. 

Anyone who fails to comply with the filing of income tax returns when necessary face civil and criminal sanctions, including prosecution and prison sentences.  In my opinion, why would you want to take any chances.  Best wishes for a healthy and happy 2020!

The Internal Revenue Service today urged taxpayers to resolve their significant tax debts to avoid putting their passports in jeopardy. They should contact the IRS now to avoid delays in their travel plans later.

Under the Fixing America’s Surface Transportation (FAST) Act, the IRS notifies the State Department (State) of taxpayers certified as owing a seriously delinquent tax debt, which is currently $52,000 or more. The law then requires State to deny their passport application or renewal. If a taxpayer currently has a valid passport, State may revoke the passport or limit a taxpayer’s ability to travel outside the United States.

When the IRS certifies a taxpayer to State as owing a seriously delinquent tax debt, the taxpayer receives a Notice CP508C from the IRS. The notice explains what steps the taxpayer needs to take to resolve the debt. IRS telephone assistors can help taxpayers resolve the debt. For example, they can help taxpayers set up a payment plan or make them aware of other payment options. Taxpayers should not delay because some resolutions take longer than others.

Don’t Delay!
It’s especially important for taxpayers with imminent travel plans who have had their passport applications denied by State to call the IRS promptly. The IRS can help taxpayers resolve their tax issues and expedite reversal of their certification to State. When expedited, the IRS can generally shorten the 30 days processing time by 14 to 21 days. For expedited reversal of their certification, taxpayers will need to inform the IRS that they have travel scheduled within 45 days or that they live abroad.

For expedited treatment, taxpayers must provide the following documents to the IRS: 

• Proof of travel. This can be a flight itinerary, hotel reservation, cruise ticket, international car insurance or other document showing location and approximate date of travel or time-sensitive need for a passport.
• Copy of letter from State denying their passport application or revoking their passport. State has sole authority to issue, limit, deny or revoke a passport.

The IRS may ask State to exercise its authority to revoke a taxpayer’s passport. For example, the IRS may recommend revocation if the IRS had reversed a taxpayer’s certification because of their promise to pay, and they failed to pay. The IRS may also ask State to revoke a passport if the taxpayer could use offshore activities or interests to resolve their debt but chooses not to.

Before contacting State about revoking a taxpayer’s passport, the IRS will send Letter 6152, Notice of Intent to Request U.S. Department of State Revoke Your Passport, to the taxpayer to let them know  what the IRS intends to do and give them another opportunity to resolve their debts. Taxpayers must call the IRS within 30 days from the date of the letter. Generally, the IRS will not recommend revoking a taxpayer’s passport if the taxpayer is making a good-faith attempt to resolve their tax debts.

Ways to Resolve Tax Issues
There are several ways taxpayers can avoid having the IRS notify State of their seriously delinquent tax debt. They include the following:

• Paying the tax debt in full,
• Paying the tax debt timely under an approved installment agreement,
• Paying the tax debt timely under an accepted offer in compromise,
• Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice,
• Having a pending collection due process appeal with a levy, or
• Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief. 

Relief programs for unpaid taxes
Frequently, taxpayers qualify for one of several relief programs including the following:

• Payment agreement. Taxpayers can ask for a payment plan with the IRS by filing Form 9465. Taxpayers can download this form from IRS.gov and mail it along with a tax return, bill or notice. Taxpayers who are eligible can use the Online Payment Agreement system to set up a monthly payment agreement. Using the Online Payment Agreement system is cheaper and can save time.
• Offer in compromise. Some taxpayers may qualify for an offer in compromise, an agreement between a taxpayer and the IRS that settles the tax liability for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to determine the taxpayer’s ability to pay. Taxpayers can use the Offer in Compromise Pre-Qualifier tool to help them determine whether they’re eligible for an offer in compromise.

Subject to change, the IRS also will not certify a taxpayer as owing a seriously delinquent tax debt or will reverse the certification for a taxpayer:

• Who’s in bankruptcy,
• Who’s identified by the IRS as a victim of tax-related identity theft,
• Whose account the IRS has determined is currently not collectible due to hardship,
• Who’s located within a federally declared disaster area,
• Who has a request pending with the IRS for an installment agreement,
• Who has a pending offer in compromise with the IRS, or
• Who has an IRS accepted adjustment that will satisfy the debt in full.

For taxpayers serving in a combat zone who owe a seriously delinquent tax debt, the IRS postpones notifying the State Department of the delinquency and the taxpayer’s passport is not subject to denial during the time of service in a combat zone.

This is a reprint from an IRS writing.

So tax season is over and you have filed your returns.  You are finished with taxes for yet another year.  Yippee!

That is until you go to your mailbox and find a corrected income tax statement.  A financial institution discovered an error in what was previously reported and the numbers have changed.  So now what do you do?

Pull out your tax file for 2017 and proceed to file an amended return.  You need to file an amended return if there is a change in your filing status, income, deductions or credits using form 1040X.  It really isn’t as cumbersome as your original return, however.

Should you find that you owe additional tax, you should immediately proceed to pay the additional tax as penalties and/or interest can be assessed.  If you find that you are entitled to a refund, the Form 1040X must be filed within 3 years of the date you filed your original return or within 2 years after the date you paid the tax, whichever is later.

Preparing a Form 1040ZX has three columns which must be completed.  Column A shows your original figures reported on your Form 1040.  Column C shows what the figures should be and Column B reflects the amount of adjustment.  There is also an area for you to explain the reason for filing Form 1040X.  Amended returns cannot be e-filed and the instructions provide the correct address for you to mail your return.  When mailing your return, you should include a copy of the documentation you received which necessitated the amendment.

If you needed to amend your federal return, chances are that you need to amend your state return.  Information can be located on the website for your state taxing authority with regard to the procedure.  Additional information regarding amended returns can be located on the IRS website at www.irs.gov by searching for amended returns or Form 1040X.

Certain taxpayers might get a letter from the IRS this year. It’s called an IRS Notice CP 2000. It gives detailed information about issues the IRS identified. The IRS sends this notice when information from a third party doesn’t match the information the taxpayer reported on their tax return. The notice also provides steps taxpayers should take to resolve those issues.

Here is some information about these notices to help taxpayers understand why they got one and what to do when it arrives:

• The IRS sends a notice to the taxpayer when a tax return’s information doesn’t match data reported to the IRS by banks and other third parties.
• This notice isn’t a formal audit notification. It is simply a notice to see if the taxpayer agrees or disagrees with the proposed tax changes.
• Taxpayers should respond to the Notice CP2000. The taxpayer usually has 30 days from the date printed on the notice to respond.
• The IRS provides a phone number on each notice. IRS telephone assistors can explain the notice and what taxpayers need to do to resolve any issues.
• The IRS will send another notice to the taxpayer if the taxpayer doesn’t respond to the initial Notice CP2000, or if the agency can’t accept the additional information provided. It is called an IRS Notice CP3219A, Statutory Notice of Deficiency.
• The Notice CP3219A gives detailed information about why the IRS proposes a tax change and how the agency determined the change. The notice tells taxpayers about their right to challenge the decision in Tax Court if they choose to do so. Even if they decide not to go to Tax Court, the IRS will continue to work with the taxpayer to help resolve the issue.

You think about it but are concerned about a large capital gain if you have owned your home for several years.  You don’t want all of the profit to be spent in paying capital gains’ tax. 

Do not fear.  There is good news for sellers.  When you file your income taxes for the year of the sale, there may be an exclusion for all or part of the gain on the sale. 

If during a five-year period ending on the date of the sale, you as the homeowner owned the home and lived in it as your primary residence for at least two years, an exclusion may be available if you meet the ownership and use tests. 

If you sell your primary residence, you may be able to exclude up to $250,000 of the gain ($500,000 for taxpayers filing a joint return).  

Unfortunately, if you have a second home and sell it, the gain exclusion is available only on your primary residence. 

When you sell your home, you should receive a Form 1099-S which is used to report the sale.  If you had a mortgage and the balance was not paid at closing or a portion of it was not paid, you must report forgiven or cancelled debt as income on your tax return.  This would be as a result of a mortgage workout, foreclosure or other situation.  People are often misled that if a debt is cancelled or forgiven, they are free and clear.  However, such is not the case.

As with everything, there are exceptions to these rules for certain individuals, such as persons with a disability, certain military members, etc. 

If you sell your home and prepare your own taxes, Publication 523 can assist with the calculation of gains and provide other information relative to reporting the sale. 

You have decided to take the whole family and a few extended family members on a trip to Hawaii.  In all, there will be nine of you.  So, let’s see – how many hotel rooms would you need to accommodate the travelers, taking into consideration if kids would be in a room by themselves, who could room together, etc.  Add to that, many hotel rooms don’t have kitchen facilities and feeding everyone at least three times a day in a restaurant will get expensive.  So, you decide to go on a website to see if you can rent a home that would accommodate everyone, enable cooking to be done and give everyone space to spread out rather than in a cramped hotel room. You find the perfect house and decide to rent it. Great! This will be some vacation! 

For you, as the party who will be renting, this is an appealing alternative. But, let’s change the scenario around a little.  You have a sizeable home at the shore or in the mountains and it doesn’t get used as much as it could.  After your trip to Hawaii and renting a house, you decide that your second home could generate some income to help offset the maintenance.  So, you decide to use one of the online sites to advertise your home for rent.  Sounds like a great idea.  What could be the downside? 

The sharing economy has become quite popular recently – sharing homes, vehicles, tools, you name it.  But, there are some things that should be kept in mind that could impact your income taxes. 

First of all, the activity is taxable.  Even if the activity is only part time, it is the source of a second income, payments are in cash and the owner receives a Form 1099 or a Form W-2.

Next, there are only certain expenses which are deductible, but the expenses have guidelines for deductibility. 

If you rent out a home and you use it part of the time, there are special rules to be applied for determination of the allowed deduction of expenses. 

The additional income may necessitate your having to make estimated income tax payments to ensure that the adequate amount of income taxes have been paid throughout the year toward your total tax liability.

From renting spare rooms and vacation homes to car rides or using a bike…name a service and it’s probably available through the sharing economy. Taxpayers who participate in the sharing economy can find helpful resources in the IRS Sharing Economy Tax Center on IRS.gov. It helps taxpayers understand how this activity affects their taxes. It also gives these taxpayers information to help them meet their tax obligations.

If you want to try the sharing economy as an owner, you may wish to check with your tax preparer for guidance on joining the sharing economy.  It is great for some people, but not necessarily the best idea for everyone. 

What an odd combination you might think.  But it is something to be considered when planning a wedding.  No, unfortunately you can’t get a deduction for the cost of the wedding.  Sorry. 

But regardless of when the happy couple becomes Mr. and Mrs., the first tax return as a married couple will be due before they know it. 

Perhaps you aren’t in the midst of planning a wedding, but if you know someone who is, you may want to share this blog with them.

The IRS has offered five simple steps that can reduce the stress of filing a first income tax return as newlyweds:

Step 1: Taxpayers should check their withholding at the beginning of each year, or when their personal circumstances change — like after getting married. Using the IRS Withholding Calculator is a good way for taxpayers to check their withholding. Taxpayers who need to change their withholding should complete and submit a new Form W-4, Employee’s Withholding Allowance Certificate, to their employer.

Step 2: Marriage may mean a change in name. If either – or both – of the newlyweds legally change their name, it’s important to report that change to the Social Security Administration. The names on the taxpayers’ tax return must match the names on file at the SSA. If it doesn’t, it could delay any refund.

Step 3: If a marriage means a change in address, the IRS and the U.S. Postal Service need to know. Newlyweds can file Form 8822, Change of Address, to update their mailing address with the IRS. They should notify the postal service to forward their mail by going online at USPS.com or by visiting their local post office.

Step 4: Taxpayers who receive advance payments of the premium tax credit should report changes in circumstances to their Health Insurance Marketplace as they happen. Certain changes to household, income or family size may affect the amount of the premium tax credit. This can affect a tax refund or the amount of tax owed. Taxpayers should also notify the Marketplace when they move out of the area covered by their current Marketplace plan.

Step 5: Newlyweds should consider their filing status. A taxpayer’s marital status on December 31 determines whether they’re considered married for that full year. Generally, the tax law allows married couples to file their federal income tax return either jointly or separately in any given year. Taxpayers can use the Interactive Tax Assistant to determine which status is best for them.

Give these steps attention so that the honeymoon can continue.