17

Apr

HURRY!! Last Minute Tips for Taxpayers

Hello Fellow Taxpayers! 

 

Today is the deadline for filing your income tax return or filing for a six-month extension of time to file your return.  You need to mail either your tax return or your request for extension TODAY.  We recommend mailing your return or request for extension via certified mail return receipt requested and having your white slip stamped by the post office.

If you are unable to complete your income tax return today, an extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due.  You will owe interest on any amount not paid by the deadline, plus you may owe penalties.

Requesting an Extension

You can request an extension in the following ways:

1. IRS Free File:  Traditional Free File and Free File Fillable Forms can both be used to file an extension for free.   You can access free file here.

2. IRS e-file:  Use IRS e-file to request an extension by using tax preparation software on your own computer or by going to a tax preparer.

3.  Form to File:  Mail in IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.  It must be postmarked by today, April 17, 2012.

Paying Your Taxes

Taxpayers that are ready to file their returns and those that have already filed and need to pay a tax bill have payment options:

1.  E-file:  File electronically and authorize an electronic funds withdrawal via tax preparation software or a tax professional.

2.  Phone or Online:  Pay by phone or online using a credit card here.

3.  Mail:  Pay by check or money order made payable to the “United States Treasury.”  Be sure to include your name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number.  Complete and include Form 1040-V, Payment Voucher, when mailing your payment to the IRS.

File Your Tax Return – Even If You Can’t Afford to Pay

You should file your return even if you can’t afford to pay.  The IRS can assess a penalty if you fail to file, fail to pay or both.  Filing your return on time (or timely requesting an extension) will avoid an unnecessary failure-to-file penalty, which is usually more than the failure-to-pay penalty.  See our prior discussion on this issue here.

IRS Options

If you owe tax with your federal tax return, but can’t afford to pay it all when you file, the IRS has options to help you keep interest and penalties to a minimum.  File your return on time and pay as much as you can with the return, then request additional time to pay in the following two ways:

1.  Additional time to pay:  You may request a short additional time to pay your tax in full using the Online Payment Agreement application on www.irs.gov. Taxpayers who request and are granted an additional 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.  There is no fee for this short extension of time to pay.

2.  Extension of time to pay:  Qualifying individuals may request an extension of time to pay and have late payment penalties waived as part of the IRS Fresh Start initiative.  To see if you qualify visit http://www.irs.gov and get Form 1127-A, Application for Extension of Time for Payment.  This application must be filed by today, April 17, 2012.

Types and Amounts of Penalties

If you do not file by the deadline, you might face a failure-to-file penalty.  If you do not pay by the due date, you could face a failure-to-pay penalty.

Failure-to-File Penalty.  The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.  If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure-to-Pay Penalty.   If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.

NOTE:  If you request an extension of time to file by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.

Both Penalties Can Be Imposed.   If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.  However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Excuses, Excuses.   You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

If you would like to speak with us regarding your options, please contact us.

Muiños & Morales

398 days ago Short URL Comments

Late or Unfiled Tax Returns/Tax Compliance

10

Feb

Happy Tax Season Series: Don’t Forget to Report Unemployment Compensation

With the current United States unemployment rate, many Americans are collecting unemployment, some for the first time ever.  Now that tax season is here, many people are asking whether unemployment payments are taxable.   The short answer is yes, unemployment compensation is taxable.

Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a state.  It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund.  It also includes railroad unemployment compensation benefits.  However, it does not include worker’s compensation payments.

If you received unemployment compensation during the year, you should receive Form 1099-G, showing the amount you were paid.  Any unemployment compensation received must be included in your income and is reported on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.

If you received unemployment compensation, you may be required to make quarterly estimated tax payments.  However, you can avoid this burden by asking the payor to withhold federal income tax by filing a Form W-4V, Voluntary Withholding Request.  If you have done neither of these things, and had no other income tax withheld previously during the year 2011, you may have difficulty paying the taxes you owe this year.

However, we remind you that you should always timely file your income tax return, regardless of whether you can pay the amount owed or not, in order to avoid unnecessary failure to file penalties.  See our previous blog post here explaining additional reasons why you generally should always file.  There are IRS payment plans and other tax debt relief solutions available to you to pay off this debt.

If you have questions or would like our assistance please contact us. 

For more information, see Unemployment Benefits in Publication 525.

Muiños & Morales

465 days ago Short URL Comments

Late or Unfiled Tax Returns/Tax Compliance

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28

Sep

WHY YOU SHOULD ALWAYS FILE YOUR TAX RETURN, EVEN WHEN YOU CAN’T PAY YOUR TAXES

You should generally file all required tax returns that are due, regardless of whether or not you are currently able to pay the tax due in full.   If you need to ask why, here are three compelling reasons:

1.  Avoid Unnecessary Penalties.

Failure to file a tax return will often result in a failure-to-file penalty.   This failure-to-file penalty is in addition to (and generally more than) the failure-to-pay penalty.  The penalty increases each month your return is late.  The IRS will eventually notice that you have not filed.  Why tack on an additional penalty which will only increase the amount of tax due?   Filing a your tax return, even if it is already late, may help reduce the tax penalties, even if you cannot pay the taxes owed.

2.  Get the Clock Ticking.

The collection period in which the IRS can collect taxes on your tax return is limited.  (We will discuss this further in another blog post.)  However, if you don’t file your tax return, the IRS can come after you at any time, even many years later.  By filing your tax return, you are starting the statute of limitations and, thus, are limiting the time period in which the IRS can use its collection powers against you.

3.  Get Your Refund and Credits.

Even if you owe taxes for some years, you may be due refunds for others.  Your time to receive refunds for withholding or estimated taxes paid is limited to 3 years from due date of the return.  The same rule applies to a right to claim a tax credit such as the Earned Income Credit.  Self-employed persons who do not file a return will also not receive credit toward Social Security retirement or disability benefits.

What Will Happen If You Don’t File Your Tax Return

1.  A Friendly Reminder.

If you don’t file a tax return and the IRS determines that you should have filed and owe taxes, the IRS may send you a “friendly” reminder notice that your tax return has not been received.  This means they are onto you and will not relent, so don’t ignore these letters!   (By the way, even if you never receive this letter, you may still be obligated to file.  Don’t assume you are in the clear.)

2.  IRS Prepares Substitute for Return.

If the IRS determines that you have not filed your tax returns and it appears that you owe taxes, the IRS may prepare a return for you and hold you liable for the taxes owed as reflected on this substitute for return. Unfortunately, the amount of tax owed as determined by the IRS is usually MORE than the taxes you really owe.   This is because the information used by the IRS is limited and might not give you credit for deductions and exemptions you may be entitled to receive.  A tax bill will be sent to you for the tax due, plus penalties and interest.

3.  IRS Collection Activities Begin.

Once the IRS determines that you owe taxes, the IRS will begin to use its collection powers against you.  This may include levying your bank accounts, levying your wages, recording federal tax liens, seizing your assets, etc.  Once the collection process begins it becomes more difficult to stop it.  Voluntarily filing your returns and acknowledging your tax debt may eliminate the filing of a notice of tax lien by the IRS thereby damaging your credit.  (We will discuss these collection powers in a future blog post.)

Filing Late Tax Returns

A tax professional can assist you in filing your unfiled tax returns and, depending on the circumstances, may:

• contact the IRS to acknowledge your tax filing delinquency and inform the IRS of your efforts to comply;

• gather information from the IRS regarding what sources of income have been reported in connection with your tax return;

• gather information from the IRS regarding what penalties and interest may have been already assessed against you;

• request abatement of penalties and interest wherever possible; and

• request temporary relief from collection efforts to allow additional time to prepare your returns.

Don’t fret!  It may be easier than you think to file your late returns and get back into the IRS’s good graces.  If you have misplaced the documents necessary to correctly determine your taxes, a tax professional can help you gather or reconstruct them.  Even if you can’t pay all (or even any) of your tax due, you have options at your disposal.   Be proactive and discuss your options with a tax attorney.

If you would like to consult with us regarding your options, please contact us.

Muiños & Morales

600 days ago Short URL Comments

Late or Unfiled Tax Returns

17

Sep

WHY YOU NEED A TAX ATTORNEY TO HELP YOU WITH YOUR IRS TAX PROBLEMS

We love accountants.  They are our homeboys.  However, would you hire your wedding planner to help you with your divorce?   I didn’t think so.

It is true that any “tax professional” can represent you before the IRS.  That includes tax attorneys, accountants, CPAs and what the IRS calls enrolled agents.

Your accountant is highly skilled at preparing your tax returns and knowledgeable about IRS regulations.   He discovered deductions that saved you tons of money.   He doesn’t get angry (well, maybe he does just a little) when you show up to his office with a box full of crumpled up receipts the day before your tax return is due and answers the phone when you call him at 2 a.m. in a fit of panic because you dreamt that he forgot to remit your payroll taxes this quarter.  He knows all the ins and outs of your business and is a trusted confidant.  He knows all your secrets…

A Little Thing Called Attorney-Client Privilege.

Hmm… let’s talk about something you may have heard of called the Attorney-Client Privilege.  Only conversations with attorneys are protected by the attorney-client privilege, which means that, in general, any information you share with your tax attorney cannot be used against you or disclosed to a third party (such as the IRS, the Florida Department of Revenue, or in a court of law).  There is no such guarantee with your accountant – the one who knows all your secrets and is a trusted confidant.  Oh and guess what?!  The IRS can subpoena (i.e., force him) to testify against you in court.   Umm….yeah.

We Have the Code and Know How to Use It. 

The Internal Revenue Code that is.  Your tax attorney (at least the one you really want to hire) should have a specialized degree called an LL.M. (Masters of Law) in Taxation that provided him with the necessary education and training with regard to researching and analyzing the tax laws in relation to your specific factual circumstances.  This “super power” differentiates an attorney from an accountant/CPA/enrolled agent.

The Art of War. 

Most tax controversies involve a significant amount of negotiation.   Attorneys are educated and trained in the art of negotiation, and to advocate on behalf of their clients.   Your tax attorneys are prepared to step into your shoes and be your eyes, ears and voice.  Stay home watching HGTV/Bravo or whatever is on your DVR while we deal with that nasty IRS agent.   We know what to do.  We know what NOT to do.

Besides, what if you really want to fight the IRS tooth and nail and the matter ends up in court?  Your tax attorney would obviously be your go-to guy.

Geez, Just Call Us Already.

If the IRS is chasing you and you’re overwhelmed… If you are forced to take an Ambien each night because you can’t fall asleep worrying that the IRS is going to put a lien on your house, garnish your wages and levy your bank account…  DON’T CALL YOUR ACCOUNTANT.  CALL US.

Muiños & Morales

611 days ago Short URL Comments

Innocent Spouse Relief/IRS Audits/IRS Collection Procedures/Late or Unfiled Tax Returns/Liens and Levies/Payroll Taxes/Tax Debt Relief Solutions/Wage Garnishments

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