2 Ways to Trigger An Audit

Photo: Mconnors
Photo: Mconnors

2 Types Of Errors That Will Attract The IRS’s Attention

Nothing is more stressful to a taxpayer than an audit notice. Filing the return on time was stressful enough, and now the IRS has set their lazer focus on your return. Before you freak out, there are two factors that may have contributed to that audit notice, and both of them are easy to fix.

Missing Information

If your social security number, date of birth, signature or other key pieces of information are missing from your return, that will draw attention to your return.

Double and triple-check your return.  DIY tax prep software has warnings encoded that prohibit you from moving onto the next screen if information is missing. If it’s your first time using that tax prep software or your first time filing a return, make sure you have your social security card handy if you haven’t memorized your social security number.

Likewise, if you file a paper return for any reason, check it over to make sure you have provided all the complete and correct information.

Taking a few extra minutes to check your return could save you the headache of receiving an audit notice. Even if a tax pro files your return, read it over to make sure all information is accurate.

In fact, if your tax pro doesn’t ask you to review your return, ask to see it. Tax pros are human and can accidentally transpose digits on a social security number or birth date, so be sure to look over your return carefully.

Income Discrepancies

Your employer reports your earnings to the IRS, as does your client if you are an independent contractor who earns over $600.00 from that client. Once the IRS receives your return, they compare the information you provided with the information provided to them from your employer(s) and/or client(s). If the IRS suspects that you are deliberately under-reporting your income, that may be enough for them to send out that audit notice.

When filing your return, make sure you or your tax pro have all of your current income documentation (W2, 1099 Misc. forms, etc.) at the time you prepare your return. Double and triple-check the income figures. Generally, the IRS will want to audit people who they see as most likely to under-report income: wealthy folks who may have offshore accounts and self-employed folks.

What To Do If You Discover Errors on Your Return

Your tax return is filed on time. Whew!  An e-filed return with missing or incorrect information will be rejected and sent back to the tax prep office, but if you choose not to e-file, and realized there are some errors on your return, here is what you can do:

  • First, don’t panic. It happens to the best of us. Instead, file an amended return with the missing or correct information included. Catching errors before the IRS does can save you the headache of filing an amended return after the fact and any possible delays on any refunds.
  • If the thought of filing an amended return is intimidating, have a tax prep pro file it for you. That will eliminate the guesswork and the stress of filing an amended return. It’s also a good idea to have your return filed professionally if you have a complex return (itemized deductions, rental properties, investments and other transactions).

Although audits may be unavoidable, you can reduce your risk of being audited by filing an accurate return and by providing complete and correct information, including income. The IRS isn’t out to “get” you, but it does give extra scrutiny to returns that are incomplete or inaccurate.

If you are facing any kind of tax dilemma–from incorrect returns to back taxes–we have tax pros on staff who can help you. Just give us a call at (888) 224-3004 or click the white “Start Chat” button in the upper right-hand corner of any of our webpages.

Don’t go it alone. We’re here to help.

 

 

 

IRS Scam Still Going Strong

Photo: rickyysanne
Photo: rickyysanne

 

You’ re in the middle of a busy workday and your phone rings. You check your voicemail and find an “urgent” message from the IRS regarding taxes that you owe.

Don’t call them back. It’s not the IRS. It is, however, a scam artist hoping to strong-arm you into handing over your hard-earned money. Don’t fall for it.

How To Tell If It’s A Scam

  • The IRS will always contact you via mail; never by phone unless you are waiting for a return call from an agent.
  • The IRS will never demand payment information or other information from you over the phone.
  • The IRS will never threaten you with arrest or deportation for non-payment of taxes.

Scammers have been targeting vulnerable people: the elderly, newly arrived immigrants, people with limited English skills, and young taxpayers.  Anyone can become a victim, however.

Since this scam first made headlines in 2013, 290,000 people have been contacted, and 3,000 of those folks have paid a total of 14 million to scammers posing as IRS collection agents, according to the Treausury Inspector General for Tax Administration (TIGTA).

What To Do

If you receive such a call, hang up. If you know you don’t owe any taxes, report the call to TIGTA at (800) 366-4484 or at www.tigta.gov

Report the call to your local police department and file a fraud/identity theft report if you are able to capture the number from your caller i.d.

If you do owe taxes or back taxes, confirm the amount with the IRS by calling them at (800) 829-1040. They will be able to locate your tax records and the amount you owe.

The IRS scammers have disarmed their victims by having much of their personal information. Don’t be fooled. A legitimate IRS agent will contact you via mail first, along with a contact number.

As they used to say on an old cop show from the 80s: be careful out there.

 

 

 

I Missed The April 15th Deadline. What Could Possibly Happen?

Photo:DodgertonSkillhaus
Photo:DodgertonSkillhaus

April 15th was here and gone and you didn’t file your tax return. You’re not alone. Each year millions of people don’t file their return in time for the April 15th deadline. The reasons vary, but it’s important that you do file a return. Here’s a quick look at some of the consequences of not filing a return on time:

  • You might get hit with a “failure to file” penalty. If you haven’t yet filed your return, it’s best to do so as soon as possible so you are in a better position to reduce the penalty.
  • You could lose your refund or any credit for overpayment on estimated taxes. You won’t be hit with a “failure to file” penalty if you’re due to receive a refund, but wait too long to file and your refund could disappear altogether. There is a three-year window in most cases, but IRS rules regarding refunds and credits are subject to many “ifs” and “buts” so it’s best to file your return with the help of a qualified tax professional. They understand and research tax codes so you won’t have to.
  • You won’t receive your Earned Income Tax Credit (EITC). Even if you aren’t otherwise required to file a return (if your income falls below the minimum required to file a return, for example) you won’t receive the credit unless you file a return.

If you didn’t file a return because you owe taxes, a qualified tax professional can help you file the late return and negotiate with the IRS regarding those taxes.

Unfiled returns can also hurt you if you are a  college student or if your child is a  college student; many federal and state grant programs are “need based” or based on income.

You or your qualified student could miss out on grants or other forms of aid if you don’t have a current tax return since the award amount is based on income from the most recent tax year.

Things happen. People get stressed. They have had a bad year, either emotionally or financially and things slip through the cracks, including tax returns.

If the thought of filing a past due return freaks you out, we have tax pros on staff who can help you file a late return. Give us a call at (888) 224-3004 or click on the white “Start Chat” button at the upper right-hand corner of any of our webpages.

Whatever you do, don’t let a tax return slide. Let us help you get back on track with your returns.

Why You Need a Tax Pro For Tax Return Prep

Photo: cohdra/morguefile
Photo: cohdra/morguefile

Let’s face it. DIY has taken hold on nearly every front besides home repairs. Modern software packages and apps have made even tax return prep a breeze. DIY tax return prep does have its advantages, primarily being able to file your tax return from home in your PJ’s.  For many of us, it doesn’t get much better than that.

However, life has a way of becoming more complicated as we go along, and with those life adjustments come changes to our tax scenario. A qualified tax prep professional can help you manage those  tax-related changes  Here’s a look at some good reasons to have your returns filed by a pro each year:

  • You’re self-employed or own a business.
  • You buy and/or sell a home or rental property
  • Birth or adoption of a child
  • Your marital status changes
  • You’re not good with numbers
  • You have itemized deductions
  • You have student loan interest

It’s Cost-Effective

Sure, you will have to pay for professional tax prep services. However, what you get in exchange is an accurate return that will be free of costly errors. For instance, if you under-report your income or claim a deduction that you’re not eligible for by mistake, the IRS won’t hesitate to hit you with a sizable penalty.

Your tax prep pro will file returns that are timely and accurate…saving you money in the long run.

You’ll Get Help With An Audit

In the event you are selected for an audit, your response to the IRS will need to be spot-on or you could end up owing even more money. A tax prep pro will be able to produce an accurate audit response report.

Should you ever need representation in negotiating with the IRS, your tax pro can refer you to an Enrolled Agent or tax attorney if they are not one themselves. It is critical to have professional representation when dealing with the IRS or state tax board.

Finally…

A tax prep pro stays current on tax laws and tax codes so you won’t have to. That alone is worth it.

If you need help with your tax returns, we have tax prep staff on hand to prepare and file your returns. It’s never too early to give us a call, especially if your tax or employment status has changed. We’ll be glad to answer your questions. (888) 224-3004.

 

 

Tax Collections And Older Adults

 

Photo:WallyJr
Photo:WallyJr

The prospect of IRS tax collection is unsettling enough, but even more so if you’re an older adult on limited income or are caring for an older loved one.

An older adult who relies on Social Security retirement income or Social Security disability income may find themselves owing taxes, even if they don’t have the means to pay them. Events such as lump sum distributions or proceeds from selling a home may bump them into a higher tax bracket for the tax year and leave them with the tax bill to show for it.

As with any other outstanding tax matter, older adults could find themselves subject to levy of their income and assets for unpaid taxes. While the IRS does have processes in place to protect low-income older adults from levy of the Social Security income, the system isn’t foolproof. Working with a qualified tax pro is critical to avoid unfair levy of income and assets.

In other instances, up to 15% of Social Security benefits could be levied for non-payment of tax debt.

While contacting a tax pro is crucial under these circumstances, there are at least two options for you to be aware of.

  • Form 433-F and Currently Not Collectible (CNC) status. You will disclose all of your assets, income and expenses. If the IRS determines that you can’t meet your essential expenses AND the text debt obligation, your case will be designated as CNC.
  • Establishing Doubt as to Collectivity: A tax pro reviews your income and assets. If your income and assets combined are less than the tax debt owed, your tax pro will file the necessary paperwork with the IRS. “Doubt as to Collectivity” essentially refers to the unlikely chance of collecting on the tax debt in question.

Tax debt collection at any age is stressful. Older adults who are living on fixed incomes with limited (or no) employment options are especially vulnerable, and are more likely to need third-party assistance in resolving those debts. If you are caring for an older loved one or if you are an older adult facing IRS collection actions, it is critical that you have a qualified tax pro by your side.

Don’t go it alone. We have a staff of  tax pros, including Enrolled Agents and tax attorneys who can help you or a loved one navigate the IRS debt collection maze. Learn about the options available to you or a loved one by calling us at (888) 224-3004 or by clicking the white “Start Chat” button in the upper right hand corner of our webpage.

 

 

 

Tax Breaks For Baby Boomers And Beyond

Photo:DuBoix
Photo:DuBoix

If you’re a Baby Boomer 50 or older, there are some tax deductions that can work in your favor. Even if you plan on working well into your 50s and beyond, there are some tax deductions you can enjoy now.

This is just a general overview; remember to consult a tax professional if you have questions regarding your specific tax status.

Medical/Dental Expenses deduction

If you itemize your deductions on Schedule A of your federal return, you may be able to claim some of your medical and dental expenses. You would only be able to claim medical and dental expenses in excess of 7.5% of your Adjusted Gross Income or AGI. If you are 65 or older beginning in 2017, you will only be able to deduct any medical and dental expenses in excess of 10% of your AGI.

Retirement Plan Contributions

Taxpayers over 50 enjoy a higher contribution limit for Roth IRAs, traditional IRAs and 401(k) plans. If you are self-employed and contribute to a SEP-IRA, Simple IRA or a solo 401(k), the higher contribution limits will apply once you reach 55.

While contributions for a Roth IRA are taxable, withdrawals are tax-free.

Investment Expenses

As you age and shift your income source from wages to social security and investment income, your deduction options don’t disappear along with your wages. Dividends and capital gains from investment are taxed at a lower rate than ordinary income, with tax ranging from 0-20%, depending on your tax bracket. Better yet, unlike earnings from employment or a business, investment income won’t be subject to Medicare and Social Security tax.

There are a series of investment-related deductions that apply if they, along with your other deductions, exceed 2% of you AGI:

  • Attorney or accounting fees
  • Online investment service fees
  • Home computer used for investment purposes
  • Financial planning fees
  • Fees paid to a bank, broker or other third party for the purpose of aquring investment property such as stocks and bonds. Some restrictions do apply, so check with your tax pro regarding this deduction.

Charitable Contributions

While not limited to adults over 50, charitable contributions can be itemized on Schedule A of your federal return. This will come in handy if you’re downsizing or just cleaning out after the kids have moved out.

  • Cash contributions: Contributions of up to 50% of your AGI are eligible each year as an itemized deduction on Schedule A of your federal return.
  • Property other than cash: Clothing, household goods, bedding, and any other items donated to a qualified charity such as a thrift store or shelter, you will need to estimate the Fair Market Value of the items. The FM¿V will be allowable amount for your deduction.
  • Boats, cars, planes, jet skis and similar: In this case your deduction will be limited to the gross sale proceeds to a qualified charity. This rule applies to vehicles with a claimed value of $500.00 or more.

As with any itemized deductions, hang onto those receipts…you will need them come tax filing day. Keep them tucked away where they will be easy to reach when it comes time to file your taxes.

As with any specific tax questions, always check with a qualified tax pro, especially if this is your first year of retirement or you are planning to retire soon. Other deductions may also apply, depending on your home ownership status, tax bracket and other factors. Even though you may be staying in the workforce much longer than your parents did, there are still tax deductions tailored to adults over 50 that you can enjoy even before you retire.

Tomorrow: What to do if you are an older adult facing tax collection.

 

Tax Prep Help For Low-Income Taxpayers And Seniors

 

vita

If 2015 is shaping up to be a tough year for you financially, you may be tempted to forgo paying for professional tax prep services and go it alone instead. While doing so may save you some extra money, it could cost you in the long run if you miss out on key deductions or tax credits. VITA (Volunteer Income Tax Assistance program) can help. IRS-trained volunteers provide free tax filing assistance to anyone who meets one or more of these criteria:

  • Household income is $53,000 or less
  • If you are a person with a disability
  • Limited English speaking
  • A senior or retiree

You can find VITA programs in public spaces such as malls, libraries, schools, community centers, and senior centers. The IRS website will post the available sites beginning mid-January. You can find the site locator at

If you’d like to do your taxes yourself under the VITA program, sites that are designated as “self-prep” on the locator page offer qualified taxpayers the opportunity to file their own federal and state returns with the guidance of an IRS-certified volunteer who will assist with any questions or problems.

VITA sites are only available from January through April.

If you are a limited-income senior in need of retirement/pension based tax consulting, the TCE (Tax Counseling for the Elderly) is for you. TCE is similar to VITA in that an IRS-certified volunteer will answer your retirement and pension-based questions and assist you with preparing your federal and state tax returns.

TCE locations are similar to VITA locations: malls, schools, senior/community centers, senior housing developments and libraries. Adults 60 and over are eligible for TCE services. Many TCE sites offer their programs in conjunction with AARP and can be found on the IRS website by typing “TCE” in the search box.

Both the VITA and TCE programs are supported by IRS grants that are awarded to community organizations that meet grant eligibility guidelines. Although tax prep services are only available from January through April, some locations may have been awarded year-round grants that enable them to conduct workshops and tax clinics outside of tax season.

These are just two of the programs available if you are a limited-income taxpayer or senior in need of tax prep help. Trained volunteers can answer your questions, address your concerns and assist you in filing your tax returns.

You don’t need to go it alone on tax filing day. VITA and TCE volunteers will assist you with basic tax questions and will file your return.

If you’re facing a more complex tax matter such as wage garnishment for non-payment of taxes or other issues beyond the reach of VITA and TCE, we are here to help. Just click the white “Start Chat” button in the upper right hand corner of our webpage, or call (888) 224-3004.

 

It’s A…Tax Break! Tax Tips For New Parents

Photo:greyerbaby/morguefile
Photo:greyerbaby/morguefile

There’s no doubt the birth or the adoption of a child is one of the most significant life changes you will ever experience. Life as you know it will change in every way, and your tax status will change as well. Here is a brief look at some of the popular child-related tax programs.

Note: all figures on based on the 2014 tax year.

Dependency Exemption: As of 2014, claiming your child as a dependent will protect $3950 of your income from taxation, saving you $975.00 if you are in the 25% tax bracket.

Child Tax Credit: Even if your child was born later in the year, you can still claim the $1,000 Child Tax Credit. As with any credit, it phases out as income increases, and disappears altogether at over $110,000 for married filing jointly, and at $75,000 for single head of household taxpayers.

Low-income parents may receive a refund if the amount of the credit exceeds their overall income tax liability.

Adoption Credit: If you adopted a child, you can offset the adoption costs by up to $13,190.00 as of 2014. If you adopted a child with special needs, you can claim the full credit amount, even if the actual adoption itself cost less.

As with any tax credit, the Adoption Credit phases out and will disappear altogether as income rises.

Earned Income Credit: This credit will benefit you if you are in the low-income range. Based on the number of children claimed, the Earned Income Credit will phase out at different income thresholds for both married and single taxpayers. For example, in 2014 the income limit for married taxpayers with one child was $20,020 and $14,590.00 for single parents with one child.

Income tax limits change each year, so be sure to have the most current information available to you on tax day.

Child Care Credit: If you pay child care costs for one child under 13, you can earn a Child Care Credit between $600.00 and $1050.00. The credit increases to between $1200.00 and $2100.00 for two or more children under 13. The actual credit amount depends on your income and how much you pay for child care, so hang on to those child care receipts or statements. You will need them on tax day.

If your Adjusted Gross Income (AGI) is $15,000 or less, you can claim up to 35% of qualifying child care costs. As your income rises, the percentage can drop to 20% of qualifying costs.

Your Filing Status

If you are married, your filing status won’t change. If you are a single parent however, you may be eligible to file as Single Head of Household. In order to qualify, you must be paying more than half the cost of providing a home for a “qualifying person,” and your new child qualifies.

At Work

Be sure to file a new W-4 with your employer so you can claim an additional withholding allowance. Doing so will reduce the amount of tax deducted from your paycheck. If your employer offers a child care reimbursement account, also called a Flex plan, enroll as soon as you can, even if you have to wait until the next “open enrollment” period.  In many cases, you can divert up to $5,000 a year into a designated account that you can later access to pay child care expenses.

However, you can’t utilize both the Flex account and the Child Care Credit, so it pays to talk to a knowledgeable tax pro about your specific concerns. They can help you determine which course of action is best for you and your family.

Welcoming a first child into your family is one of life’s most significant changes on all fronts.  Adding a child to the mix will also change your personal life, finances, schedule (sleep? what’s that?) in ways you never thought possible.

The joy of welcoming a first child also carries with it new financial responsibilities and tax obligations, so having a tax pro to help you navigate your new tax obligations will get your newly expanded family off to a great start this tax year and in years to come.

A Closer Look at The Installment Agreement

Wordle4

Second In a Series

If you’re saddled with a tax bill that you can’t pay in full, the IRS offers an Installment Agreement program. Similar to the Offer In Compromise, this program allows qualified taxpayers to make monthly payments toward their tax debt, offering some relief from a sizable tax bill. We’ll take a closer look at this program and offer a general overview of its requirements and features. As with any individual tax scenario, it’s best to check with a tax pro regarding your specific case.

BACKGROUND: As part of the IRS Fresh Start initiative in 2008, the IRS made adjustments to the terms of the program, making it easier to obtain an Installment Agreement.  Taxpayers owing $50,000 or less in taxes can request an Installment Agreement by filing form 433-A (Collection Information Statement) online, and have up to 72 months (6 years) to pay off their tax debt.

Taxpayers who owe $50,00 or more must provide supporting documentation along with their written request, and must negotiate their payment plan with the IRS.

REQUIREMENTS: Taxpayers will need to meet the following requirements in order to move forward with their Installment Agreement request:

  • You must be current on your tax returns and have no pending tax returns from prior years. If you are self-employed, you must be current on your quarterly taxes;  if you own a business, you must be current on all of your payroll tax deposits and form 941 filings.

HOW IT WORKS: As with any tax matter, it’s best to have a tax pro in your corner. If you owe over $50,000 and can’t pay off the tax debt in six years or less, you will need to file form 433-A and propose a payment plan at that time. A qualified tax pro who has reviewed your tax scenario and other finances can help you in determining a payment amount you can live with.

You will need to make that first payment at the time you file your 433-A. Keep making those payments as you and your tax pro wait to hear from the IRS. It shows good faith that you are willing to chip away at your tax debt, and that the payment is one you can live with and make each month. It can take up to several months for the IRS to reach a decision and notify you by mail.

You can make those initial payments to the local IRS service center by using the payment coupons and bar code envelopes provided to you. You have the option of using either a personal check or a bank/cashier’s check.

Once your Installment Agreement has been approved, you have two more payment options available. You can either pay via payroll deduction (your employer will need to complete form 2159), or by direct debit from your bank account.

Whatever you do, make sure you make your payments on time and for the full amount. Missing a payment or having a late payment could result in the IRS revoking the Installment Agreement.

Likewise, your IA could be revoked altogether if you provide false or misleading information on your Collection Information Statement (form 433-A), if your financial situation changes drastically, if you miss a payment, or if you fail to file your tax returns on time.

Lying to your tax pro or the IRS about your financial circumstances (failing to disclose assets, for example) can land you in serious trouble with the IRS and your tax pro. Be truthful and accurate in dealing with your tax pro and the IRS.

WHAT HAPPENS IF THE IRS REJECTS AN INSTALLMENT AGREEMENT REQUEST

If your Installment Agreement request is rejected by the IRS, this is where a tax pro can be of benefit to you. They can negotiate with the IRS on your behalf, and keep your  request moving through the IRS channels, along with keeping you updated as the  request works its way through the IRS maze.

A tax pro is also more familiar with the IRS chain of command, and can lessen the burden of endless phone calls, emails and letters to the IRS.  At the very least, a tax pro will be able to explain the process to you free of IRS jargon, in terms that you can understand.

That alone is worth it.

If you are facing a sizable tax debt and have questions, be sure to find a qualified tax pro who can address your concerns, explain your payment options, and negotiate with the IRS on your behalf.

A Closer Look At The Offer In Compromise

OIC

First In A Series

You’ve been hit with a huge tax bill. You just don’t have the means to pay it. Googling leads you to some IRS links that are impossible to decipher without a degree in accounting or tax law. You have a tax bill hanging over your head. What are your options?

Today we’re going to take a closer  look at the Offer In Compromise, one of the IRS programs designed to lessen the burden of a large tax bill.

While it’s best to consult with a tax pro, this post will offer a general explanation of the Offer In Compromise and how the program works. Only a qualified tax pro will be able to advise you if this program is an option for you. In the meantime, the IRS does offer an online tool to help you calculate roughly how much you’ll owe under this program.

Your tax pro, after evaluating your particular financial circumstances, will be able to tell you whether or not an Offer In Compromise will be the best option for you.

You and your tax pro will need to file IRS form 656 and the Collection Information Statement, along with any supporting documentation, filing fee, and initial payment. The IRS filing fee is $186.00, but if your monthly income falls below poverty level, you can file for an exemption. Your tax pro will attach an additional worksheet to the 656 form.

As with any dealing with the IRS, there forms to file and requirements to satisfy. The IRS will only consider two scenarios when evaluating your application:

  • There is some doubt as to whether the IRS will be able to collect this debt from you, now or in the future. The technical term for this scenario is “doubt as to collectivity.”
  • Whether or not paying the tax bill will wipe you out financially, otherwise known as ” economic hardship.” Other instances within this scenario would also include whether or not payment of the tax bill would be unfair or “inequitable” in IRS terms.

In either instance, you will need to make some form of payment at the time your tax pro files the necessary forms.

  • If you will be making five payments over five or fewer months, you must send a minimum of 20% of the balance due with your application.
  • If you will need more than five months to pay your tax bill, you will need to include the first payment installment with your forms. You must also continue to make payments on time while your application is being evaluated by the IRS.

If you are married and live in community property state, the IRS may request the your Collection Information Statement includes information on your spouse, even if the tax debt is yours alone.

Some Disadvantages…

The Offer In Compromise process requires what seems like mountains of documentation in addition to the customary forms. Don’t be surprised if you’re asked to submit bank records, pay stubs, vehicle registration information and other documents This process, from gathering the required documents, duplicating them and getting them sent off to the IRS, can be time-consuming. Even with all those documents, there is no guarantee your Offer In Compromise request will be approved.

Interest on the tax bill will continue to accrue during the negotiation period, which means you can end up owing more than your original balance.

At last count, only 25% of Offer In Compromise proposals were approved by the IRS. Your tax pro can help you resubmit your proposal and work with the IRS on your behalf.

As with any serious payment matter involving the IRS, it’s always best to consult with a tax pro who can walk you through this sometimes complex process. They will be able to help you complete the needed forms and will keep you updated as your case progresses through the IRS channels, and will assist you with any follow-up information required by the IRS. Better yet, they will negotiate on your behalf, taking the sting out of what can be a scary process for some taxpayers.

Tomorrow: a closer look at the Installment Agreement.