Need More Time to Pay Taxes?

All taxpayers should file on time, even if they can’t pay what they owe. This saves them from potentially paying a failure to file penalty. Taxes are due by the original due date of the return.

Here are four tips for those who can’t pay their taxes in full by the April 18 due date:

  1. File on time and pay as much as possible. Pay online, by phone, with your mobile device using the IRS2Go app, or by check or money order. Visit IRS.gov for electronic payment options.
  2. Get a loan or use a credit card to pay the tax. The interest and fees charged by a bank or credit card company may be less than IRS interest and penalties. For credit card options, see IRS.gov.
  3. Use the Online Payment Agreement tool.  Don’t wait for the IRS to send a bill before seeking a payment plan. The best way is to use the Online Payment Agreement tool on IRS.gov. Taxpayers can also file Form 9465, Installment Agreement Request, with their tax return. Set up a direct debit agreement. With this type of payment plan, there is no need to send a check each month.
  4. Don’t ignore a tax bill.  If so, the IRS may take collection action. Contact the IRS right away by calling the phone number on your bill to talk about options. The IRS will work with taxpayers suffering financial hardship.

Remember to file on time. Pay as much as possible by April 18, 2017, and pay the rest as soon as possible to reduce the interest and penalties. Find out more about the IRS collection process on IRS.gov.

Get Credit for Retirement Savings Contributions 

Taxpayers who contribute to a retirement plan, like a 401(k) or an IRA, may be able to claim the Saver’s Credit. This credit can help a person save for retirement and reduce taxes at the same time.

Here are some key facts about the Retirement Savings Contributions Credit:

Nonrefundable Credit. The maximum contribution is $2,000 per person. Those filing a joint return can also contribute $2,000 for the spouse. However, the credit cannot be more than the amount of tax that a taxpayer would otherwise pay in taxes. This credit will not change the amount of refundable tax credits.

  • Income Limits. Taxpayers may be able to claim the credit depending on their filing status and the amount of their annual income. They may be eligible for the credit on their 2016 tax return if they are:
    • Married filing jointly with income up to $61,500
    • Head of household with income up to $46,125
    • Married filing separately or a single taxpayer with income up to $30,750
  • Other Rules. Other rules that apply to the credit include:
    • Taxpayers must be at least 18 years of age.
    • They can’t have been a full-time student in 2016.
    • No other person can claim them as a dependent on their tax return.
  • Contribution Date. A taxpayer must have contributed to a 401(k) plan or similar workplace plan by the end of the year to claim this credit. However, the taxpayer may contribute to an IRA by the due date of their tax return and still have it count for 2016. The due date for most people is April 18, 2017.
  • Interactive Tax Assistant Tool. The ITA tool is a tax law resource that asks taxpayers a series of questions and provides a response based on the answers. Taxpayers can use Do I Qualify for the Retirement Savings Contributions Credit? to determine if they qualify to claim the Saver’s Credit.
  • Form 8880. File Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit.

Don’t Fall for Scam Calls and Emails Posing as IRS

Scams continue to use the IRS as a lure. These tax scams take many different forms. The most common scams are phone calls and emails from thieves who pretend to be from the IRS. Scammers use the IRS name, logo or a fake website to try and steal money from taxpayers. Identity theft can also happen with these scams.

Taxpayers need to be wary of phone calls or automated messages from someone who claims to be from the IRS. Often these criminals will say the taxpayer owes money. They also demand payment right away. Other times scammers will lie to a taxpayer and say they are due a refund. The thieves ask for bank account information over the phone. The IRS warns taxpayers not to fall for these scams.

Below are several tips that will help filers avoid becoming a scam victim.

IRS employees will NOT:

  • Call demanding immediate payment. The IRS will not call a taxpayer if they owe tax without first sending a bill in the mail.
  • Demand payment without allowing the taxpayer to question or appeal the amount owed.
  • Require the taxpayer pay their taxes a certain way. For example, demand taxpayers use a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.
  • Threaten to contact local police or similar agencies to arrest the taxpayer for non-payment of taxes.
  • Threaten legal action such as a lawsuit.

If a taxpayer doesn’t owe or think they owe any tax, they should:

  • Contact the Treasury Inspector General for Tax Administration. Use TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident.
  • Report the incident to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” to the comments of your report.

In most cases, an IRS phishing scam is an unsolicited, bogus email that claims to come from the IRS. Criminals often use fake refunds, phony tax bills or threats of an audit. Some emails link to sham websites that look real. The scammers’ goal is to lure victims to give up their personal and financial information. If they get what they’re after, they use it to steal a victim’s money and their identity.

For those taxpayers who get a ‘phishing’ email, the IRS offers this advice:

  • Don’t reply to the message.
  • Don’t give out your personal or financial information.
  • Forward the email to phishing@irs.gov. Then delete it.
  • Do not open any attachments or click on any links. They may have malicious code that will infect your computer.

More information on how to report phishing or phone scams is available on IRS.gov.

Early Withdrawals from Retirement Plans

 
Many people find it necessary to take out money early from their IRA or retirement plan. Doing so, however, can trigger an additional tax on top of income tax taxpayers may have to pay. Here are a few key points to know about taking an early distribution:
 
1. Early Withdrawals. An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59½ years old.
2. Additional Tax. If a taxpayer took an early withdrawal from a plan last year, they must report it to the IRS. They may have to pay income tax on the amount taken out. If it was an early withdrawal, they may have to pay an additional 10 percent tax.
 
3. Nontaxable Withdrawals. The additional 10 percent tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the plan. A rollover is a form of nontaxable withdrawal. A rollover occurs when people take cash or other assets from one plan and put the money in another plan. They normally have 60 days to complete a rollover to make it tax-free.
 
4. Check Exceptions. There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs.
 
5. If someone took an early withdrawal last year, they may have to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return. Form 5329 has more details.

Choosing the Correct Filing Status

When taxpayers file their tax return, it’s important they use the right filing status because it can affect the amount of tax they owe for the year. It may even determine if they must file a tax return at all. Taxpayers should keep in mind that their marital status on Dec. 31 is their status for the whole year.
 
Sometimes more than one filing status may apply to taxpayers. When that happens, taxpayers should choose the one that allows them to pay the least amount of tax.
 
Here’s a list of the five filing statuses:
 
1. Single. Normally this status is for taxpayers who aren’t married, or who are divorced or legally separated under state law.
 
2. Married Filing Jointly. If taxpayers are married, they can file a joint tax return. If a spouse died in 2016, the widowed spouse can often file a joint return for that year.
 
3. Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit them if it results in less tax owed than if they file a joint tax return. Taxpayers may want to prepare their taxes both ways before they choose. They can also use this status if each wants to be responsible only for their own tax.
 
4. Head of Household. In most cases, this status applies to a taxpayer who is not married, but there are some special rules. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person. Don’t choose this status by mistake. Be sure to check all the rules.
 
5. Qualifying Widow(er) with Dependent Child. This status may apply to a taxpayer if their spouse died during 2014 or 2015 and they have a dependent child. Other conditions also apply.
 
All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity.

IRS: The disabled should remember the EITC

The IRS wants taxpayers with disabilities and the parents of children with disabilities to be especially aware of whether they qualify for the EITC.

People with disabilities are often concerned that a refund will impact their eligibility for one or more public benefits, including Social Security disability benefits, Medicaid and Food Stamps. Refunds, including refunds from tax credits such as the EITC, are not counted as income for purposes of determining eligibility for benefits. This applies to any federal program and any state or local program financed with federal funds.

As many as an estimated 1.5 million people with disabilities miss out on this credit because they fail to file a return, according to the IRS. Many of these non-filers fall below the income threshold requiring them to file, but the service urges them to consider filing anyway to possibly receive the EITC.

To qualify, the taxpayer must have earned income. Usually, this means income either from a job or from self-employment. But taxpayers who retired on disability can also count as earned income any taxable benefits they receive under an employer’s disability retirement plan. These benefits remain earned income until the disability retiree reaches minimum retirement age.

The IRS emphasized that Social Security benefits or SSDI do not count as earned income. Additionally, taxpayers may claim a child with a disability or a relative with a disability of any age to get the credit if the person meets all other EITC requirements.

The IRS’s EITC Assistant can help determine a taxpayer’s eligibility and estimate the credit.

Ingenious Scam Targets

Crooks have tried all sorts of e-mails scams, but almost everyone has figured out that the IRS does not send out notices by e-mail. So crooks have changed their tactics. Now, there are reports of taxpayers receiving by mail (or email) fake notices requiring immediate payment to a P.O. Box. The P.O. Boxes are located in cities where the IRS has service centers, but of course are not IRS P.O. Box addresses.

These scammers have duplicated the look of official IRS mail notices, which to the untrained eye would lead one to believe a notice was really from the IRS.

So be extremely cautious of any notice you may have received from the IRS. If a notice is demanding immediate payment and there has not been any prior contact by the IRS over the issue, then the notice is probably from a scammer. Reports indicate the initial letters were numbered CP-2000.

Here is a sample fake IRS CP-2000 supplied by Iowa State University.

fake-irs-notice

Don’t be a victim, have any notice you receive from the IRS, or any tax authority for that matter, reviewed by this office before taking action.

Via California Society of Enrolled Agents

Tax refunds could be delayed for half a million in Alabama

More than a half million Alabamians could have their tax refunds delayed next year.

According to Al.com, many within the state could find themselves waiting until almost spring instead of the typical January time frame because of an IRS procedure change.

The IRS will hold tax refunds for filers claiming the Earned Income Tax Credit or the Additional Child Tax Credit until at least Feb. 15.

In 2014, about 507,000 Alabamians filed for ETC credits. Those in the state were a part of the 27.5 million people who filed for the same credits throughout the country.

In Alabama, the EITC average return amount was $2,784.

The IRS usually issues refunds with 21 days or less after processing begins on a return. The agency began accepting returns Jan. 19 this year.

Reported via ABC Alabama News Channel 9

Five Tips for Starting a Business

Understanding your tax obligation is one key to business success. When you start a business, you need to know about income taxes, payroll taxes and much more. Here are five IRS tax tips that can help you get your business off to a good start:

  1. Business Structure. An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you file.
  2. Business Taxes.  There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, you can use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from your checking or savings account.
  3. Employer Identification Number (EIN).  You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.
  4. Accounting Method.  An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.
  5. Employee Health Care.  The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. You’re eligible for the credit if you have fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities. For more information on your health care responsibilities as an employer, see the Affordable Care Act for Employers page on IRS.gov.

How Selling Your Home Can Impact Your Taxes

Usually, profits you earn are taxable. However, if you sell your home, you may not have to pay taxes on the money you gain. Here are ten tips to keep in mind if you sell your home this year.

  1. Exclusion of Gain.  You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.
  2. Exceptions May Apply.  There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, see Publication 523, Selling Your Home.
  3. Exclusion Limit.  The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
  4. May Not Need to Report Sale.  If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
  5. When You Must Report the Sale.  You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the Net Investment Income Tax on IRS.gov.
  6. Exclusion Frequency Limit.  Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.
  7. Only a Main Home Qualifies.  If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
  8. First-time Homebuyer Credit.  If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, see Publication 523.
  9. Home Sold at a Loss.  If you sell your main home at a loss, you can’t deduct the loss on your tax return.
  10. Report Your Address Change.  After you sell your home and move, update your address with the IRS. To do this, file Form 8822, Change of Address. Mail it to the address listed on the form’s instructions. If you purchase health insurance through the Health Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.