by | Nov 5, 2019 | Tax Tips and News
In a matter of weeks the 2020 filing season will be underway. To help ensure that taxpayers don’t get caught unprepared, the IRS is recommending everyone to act now to avoid any tax-time surprises and ensure smooth processing of 2019 tax returns.
As part of a series of reminders, the IRS has put together a special page on IRS.gov that outlines steps taxpayers can take to get ready for the upcoming filing season. We’ll start with the basics.
Adjust Withholding
It’s a good idea to a paycheck or pension income checkup; if a taxpayer got a smaller-than-expected tax refund than expected or owed an unexpected tax bill, it’s especially important. In fact anyone who’s had a life event during the past year – a marriage, a divorce, having or adopting a child, retiring, buying a home, or starting college – should do an income checkup. Use the IRS Tax Withholding Estimator to find the best options.
If the Tax Withholding Estimator recommends a change, an employee can then submit a new Form W-4, Employee’s Withholding Allowance Certificate, to their employer. Do not send this form to the IRS.
Taxpayers who have pension or annuity income can also use the results from the estimator to complete Form W-4P, Withholding Certificate for Pension or Annuity Payments, and give it to their payer.
Taxpayers who receive a substantial amount of non-wage income should make quarterly estimated tax payments. This can include self-employment income, investment income (including gain from the sale, exchange or other disposition of virtual currency), taxable Social Security benefits and in some instances, pension and annuity income. Making estimated tax payments can also help a wage-earner cover an unexpected withholding shortfall.
Estimated tax payments are due quarterly, with the last payment for 2019 due on Jan. 15, 2020. Form 1040-ES, Estimated Tax for Individuals, has a worksheet to help figure these payments. Payment options can be found at IRS.gov/payments.
Got a part-time job in the gig economy? Workers and retirees who get self-employment income or wages from the gig economy (this includes payments in virtual currency) should make sure to include these amounts when filling out the Tax Withholding Estimator. That’s because payments received in virtual currency by independent contractors and other service providers are taxable. Self-employment rules generally apply.
In most cases, payers have to issue Form 1099-MISC, and wages paid in virtual currency are taxable to the employee, subject to withholding, and must be reported by the employer on Form W-2.
For more complex tax situations check out Publication 505, Tax Withholding and Estimated Tax. Pub 505 is also the place to go for taxpayers who owe alternative minimum tax (AMT) or various other taxes, or those with long-term capital gains or qualified dividends.
Get Organized
When it comes to taxes, nothing helps smooth the process like organization. Taxpayers should have some sort of recordkeeping system, whether electronic or paper, that keeps important information in one place. Remember that copies of filed tax returns and their supporting documents should be retained for at least three years. This includes year-end Forms W-2 from employers, Forms 1099 from banks and other payers, other income documents, records documenting all virtual currency transactions, and Forms 1095-A for those claiming the Premium Tax Credit.
It seems to be a natural instinct for taxpayers to fire off their income tax returns the minute the IRS starts accepting them, thinking it will get their refund quicker. This can actually be counter-productive. Many times these “early bird” returns are completed without all the documentation needed – like the year-end Form W-2. If a return is missing documentation, the taxpayer will have to file an amended return to make it right and the IRS says amended returns could take up to 16 weeks to transmit a refund.
The lesson here is to gather all the year-end income documents before a 2019 return is e-filed. In addition, notify the IRS of any address changes and notify the Social Security Administration of a legal name change to avoid refund delays.
Renew expiring ITINs
Taxpayers with expiring Individual Taxpayer Identification Numbers can get their ITINs renewed more quickly and avoid refund delays next year by submitting their renewal application – and doing it quickly.
An ITIN is a tax ID number used by any taxpayer who doesn’t qualify to get a Social Security number. Any ITIN with middle digits 83, 84, 85, 86 or 87 will expire at the end of this year. In addition, any ITIN not used on a tax return in the past three years will expire. ITINs with middle digits 70 through 82 that expired in 2016, 2017 or 2018 can also be renewed.
The IRS urges anyone affected to file a complete renewal application, Form W-7, Application for IRS Individual Taxpayer Identification Number, as soon as possible. Be sure to include all required ID and residency documents. Failure to do so will delay processing until the IRS receives these documents.
It takes about seven weeks from the time a completed form is filed to the time an ITIN assignment letter from the IRS is received. But that time frame expands to 9-11 weeks if an applicant waits until the peak of tax filing season to submit the form – or if the form is sent from overseas.
Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. Applying now will help avoid the rush as well as refund and processing delays in 2020. For more information, visit the ITIN information page on IRS.gov.
File Electronically and Use Direct Deposit
The vast majority of tax professionals already know that the fastest, most reliable way to get a tax return to the IRS is through e-filing. Whether the taxpayer employs a tax pro to do their return, or files themselves, electronic filing is the way to go.
A statement from the IRS says electronic transmission works best, no matter which direction it’s headed. “Combining Direct Deposit with electronic filing is the fastest way to get a refund. With Direct Deposit, a refund goes directly into the taxpayer’s bank account. No need to worry about a lost, stolen or undeliverable refund check. This is the same electronic transfer system used to deposit nearly 98% of all Social Security and Veterans Affairs benefits. Nearly four out of five federal tax refunds are deposited directly.”
By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund − even the portion not associated with EITC or ACTC. This law change, which took effect in 2017, helps ensure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.
A word of caution about refund expectations: don’t rely on getting a refund by a certain date, especially when making a major purchase or paying bills. Some returns need additional review and may take longer to process.
For example, the IRS, along with its partners in the tax industry who serve on the Security Summit, continue to strengthen security review processes to help protect against identity theft and refund fraud. Some of these reviews may require longer to complete and therefore may delay a refund.
Looking for more information? The Let Us Help You page on IRS.gov features links to information and resources on a wide range of topics.
– Story provided by TaxingSubjects.com
by | Oct 31, 2019 | Tax Tips and News
The IRS reports that criminals perpetrating tax-related identity theft scams are taking a new approach with one of their greatest hits: the Social Security Number scam.
According to a recent IRS tax tip, fraudsters are deploying automated phone calls to threaten taxpayers with the suspension of their Social Security Number if they don’t immediately pay their tax bill. The trick? They demand payment via “prepaid debit card, iTunes gift card, or wire transfer.”
While the IRS says that taxpayers receiving these phone calls should immediately hang up the phone, those who have never been directly contacted by the IRS might be caught off guard. After all, it’s much easier to ignore this type of scam when you know you don’t owe the IRS money.
That’s why it’s important for taxpayers to learn to spot these scams. Luckily, the IRS compiled a short list of signs related to this scam that can easily be applied to a number of similar phone and email scams.
Aside from demanding payment with prepaid debit and gift cards, the IRS said taxpayers should be wary if someone calls making the following demands:
- Ask a taxpayer to make a payment to a person or organization other than the U.S. Treasury.
- Threaten to immediately bring in local police or other law-enforcement groups to have the taxpayer arrested for not paying.
- Demand taxes be paid without giving the taxpayer the opportunity to question or appeal the amount owed.
Having to deal with scams can certainly seem overwhelming—especially if this is someone’s first brush with fraudsters. That said, the IRS is also asking anyone who has been targeted by the Social Security Number scam to report the incident to the Treasury Inspector General for Tax Administration (TIGTA), the Federal Trade Commission (FTC), and, of course, the IRS:
Remember, the more information the IRS can get about these scams, the better equipped it is to warn other taxpayers about them.
Source: IRS Tax Tip 2019-149
– Story provided by TaxingSubjects.com
by | Oct 24, 2019 | Tax Tips and News
The IRS this week released another disaster victim-focused tax tip, reminding taxpayers what they can do to rebuild financial records lost to a storm, flood, or some other catastrophic event.
It’s no secret that the recovery effort following a natural disaster can be a stressful, withering process. Reconstructing financial records is just one piece of that puzzle, and the IRS understands that getting those documents can be confusing—especially if someone has never been through that process.
To help taxpayers get started, the IRS identified three common types of documents associated with “[proving] disaster-related losses … for tax purposes, getting federal assistance, or insurance reimbursement:” tax return transcripts, financial statements, and property records.
When it comes to getting copies of old tax transcripts, the IRS has two available options: using online tools and calling the IRS directly. Taxpayers who are more comfortable using Internet-based resources will need to log in to the Get Transcript tool on IRS.gov. Those who may not have access to the Internet—or simply prefer making phone calls—can use the automated phone transcript service: 1.800.908.9946.
As for recovering old financial statements, the IRS says that taxpayers will need to get in touch with the credit card companies and banks they use: “If paper records were destroyed, statements may be available online. People can also contact their bank to get hard copies of these statements.”
Finally, the IRS put together a short, bulleted list of steps taxpayers can take to rebuild property records:
- To get copies of documents related to property, home owners can contact the title company, escrow company, or bank that handled the purchase of their home or other property.
- Taxpayers who made home improvements should get in touch with the contractors who did the work. They can ask the contractor for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
- For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, the taxpayer can contact the attorney who handled the trust.
- When no other records are available, taxpayers can check the county assessor’s office for old records that might address the value of the property.
- Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.
Further information can be found in a number of IRS publications, including “Publication 547, Casualties, Disasters, and Thefts;” “Publication 584, Casualty, Disaster, and Theft Loss Workbook;” “Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook;” and “Publication 2194, Disaster Resource Guide for Individuals and Businesses.”
Source: Tax Tip 2019-147
– Story provided by TaxingSubjects.com
by | Oct 18, 2019 | Tax Tips and News
IRS Stresses Convenience of New Payment Method
Taxpayers whose outstanding tax bill has been referred to a private debt collector have a new way to pay, according to a recent IRS press release.
The IRS launched the private debt collection program following the passage of the 2015 Fixing America’s Surface Transportation (FAST) Act, which—according to a TIGTA audit—”required the IRS to begin using private collection agencies (PCA) to collect inactive tax receivables.” This latest incarnation marks the third time Congress has attempted such a program.
The latest development in the private collections program seems to emphasize convenience: PCA-referred tax debt can now be paid by preauthorized direct debit. Previously, taxpayers who had been contacted by a PCA would make payments by mailing a check directly to the Treasury or using the online payment tool on IRS.gov. That hard separation between the collection agency and making payments could make setting up the new payment option a little confusing since taxpayers have to schedule direct debit payments through the PCA.
The IRS said that taxpayers interested in using direct debit must first send a signed letter of permission to their collection agency “[containing] the payment schedule and bank account information.” Here is the contact information for the PCA partners listed on the IRS.gov “Private Debt Collection” page:
- CBE
O. Box 2217
Waterloo, IA 50704
800.910.5837
- ConServe
O. Box 307
Fairport, NY 14450
844.853.4875
- Performant
O. Box 9045
Pleasanton, CA 94566
844.807.9367
- Pioneer
PO Box 500
Horseheads, NY 14845
448.3531
After receiving a confirmation letter, taxpayers can begin coordinating payments with the PCA by phone. While direct debit promises to be a convenient way to resolve tax debt, officials warn that scammers might try to take advantage of taxpayers.
Scammers May Try to Impersonate Private Collection Agencies
When the program was first announced, TIGTA worried that scammers would try to impersonate PCAs. The IRS reiterated those concerns in this press release, emphasizing the importance of learning to spot fraud.
A common scammer tactic is to ambush victims with angry phone calls demanding payment and threatening jail time. That’s why the IRS reminded taxpayers that they will not make demands or issue threats over the phone.
Moreover, contact from a PCA should not come as a surprise. The IRS initiates the process by sending a letter containing Notice CP40 and Publication 4518 to explain the situation, and the PCA follows up with an official letter of their own.
“Both letters will include a Taxpayer Authentication Number (TAN),” the IRS said. “The TAN will be used to authenticate the PCA and to verify the identity of the taxpayer, instead of using their Social Security Number.”
Finally, the IRS said that anyone who suspects they’re the target of a scammer should report the incident to TIGTA at Treasury.gov/TIGTA or 800.366.4484.
Sources: IR-2019-165, “Private Debt Collection,” Audit Report 2018-30-052
– Story provided by TaxingSubjects.com
by | Oct 16, 2019 | Tax Tips and News
October is National Work and Family Month, and to celebrate, the IRS is issuing informative tips on the work-life balance. Topics include family businesses, family tax credits, military tax benefits, scams and security issues.
National Work and Family Month was established by a 2003 Senate resolution. October was chosen to help communicate and celebrate progress towards creating more flexible work environments and helping Americans better balance their work-life commitments.
Employer Credit for Paid Family and Medical Leave
This credit highlights the spirit of National Work and Family Month. Eligible employers who provide paid family and medical leave to their employees in 2019 may qualify for a business credit. An employer must have a written policy to qualify. The policy should provide:
- At least two weeks of paid family and medical leave annually to full-time employees, prorated for part-time employees.
- Family and medical leave pay that is at least 50% of an employee’s wages.
For tax years 2018 and 2019, the worker must earn $72,000 or less to qualify. The credit ranges from 12.5% to 25% of wages paid to qualifying employees. Some employers, the IRS says, may be eligible to claim the credit retroactively.
Wages qualifying for the credit should have been paid in tax years beginning after Dec. 31, 2017, and before Jan. 1, 2020. Tax year 2019 is generally the last year most employers can claim this credit.
Family and Medical Leave Act
FMLA traces its roots back to 2003 and requires covered employers to provide employees with job-protected and unpaid leave for qualified medical and family reasons. The law specifies certain types of employees who qualify for up to 12 weeks of unpaid, job-protected leave per year. During the leave period the employee’s group health benefits are also protected.
FMLA is designed to help employees balance their work and family responsibilities by allowing them to take reasonable unpaid leave for specific family and medical reasons.
For more information, check out “Employer Credit for Paid Family and Medical Leave,” available at IRS.gov. Other resources include the “Highlights of Tax Reform for Businesses” and “Employers may Claim Tax Credit for Providing Paid Family and Medical Leave to Employees” web pages.
– Story provided by TaxingSubjects.com
by | Oct 9, 2019 | Tax Tips and News
IRS to Taxpayers: Don’t Miss Next Week’s Filing Deadline!
The IRS this week reminded taxpayers that the filing deadline for those with a tax extension is Tuesday, October 15, 2019.
Generally, taxpayers who request an extension are given an extra six months to file their tax return with the IRS. While most tax extensions will need to be filed by October 15, the IRS noted in their tax tip that there are some exceptions—highlighting two groups in particular: members of the military and natural disaster victims who meet certain requirements.
Military members returning from combat zones usually have an extra 180 days to file and pay. The areas recognized as combat zones for the purposes of this extension and other requirements can be found on the IRS “Combat Zones Approved for Tax Benefits” web page.
Taxpayers with a residence or business in a federally-declared disaster area may also qualify for tax relief, which generally means extra time to file their tax return and pay their tax bill. While disaster-related tax relief is automatically applied to qualifying taxpayers, taxpayers who aren’t sure about their status can contact the IRS. Recent tax-relief announcements and resources can be found on the IRS “Tax Relief in Disaster Situations” and “FAQs for Disaster Victims” pages.
The release also reminded extension filers about the new Form 1040 for tax year 2018, how they can pay any tax owed, and the benefit of tax planning for tax year 2019.
When it comes to the new Form 1040, the IRS said, “[It] consolidates Forms 1040, 1040A, and 1040-EZ into one form that all individual taxpayers will use to file their 2018 federal income tax return.” To assuage worries about needing to learn updated forms (like the new Schedules 1 through 6), the agency said that tax software tends to make the transition “seamless.”
A major misconception about getting a tax extension is that it also gives taxpayers more time to pay tax owed. Every year, the IRS reminds taxpayers that the deadline for payment remains April 15 (unless a federal holiday bumps Tax Day), and that any delay in submitting payment can mean owing penalties and interest.
To help taxpayers get square with the IRS, the agency provided links to several online resources for those who still need to pay their tax year 2018 taxes:
The IRS said that taxpayers can check their account on IRS.gov for more information about their tax situation: “[Taxpayers can] view their balance, payment history, pay their taxes, and access tax records through Get Transcript.”
Finally, the IRS recommended that taxpayers perform a “Paycheck Checkup” before the end of the year. Many taxpayers found that they owed a surprise tax bill when they filed their tax year 2018 return due to Tax Cuts and Jobs Act-related changes in withholding. They said that there’s still time to avoid a similar situation on their tax year 2019 return.
The updated Tax Withholding Estimator on IRS.gov can help taxpayers discover if they need to withhold more money from their paychecks—though “taxpayers should have their 2018 tax return available when using the tool.” That means filing an extension return on time will help taxpayers better prepare for next filing season.
Source: IR-2019-163
– Story provided by TaxingSubjects.com
A-1 Accounting & Tax Service