What If You Forgot to File Taxes on Time?
April 18, 2019
Tax Day 2019 has come and gone. The deadline for filing your taxes was this past Monday, April 15 (unless you are a resident of Maine or Massachusetts, in which case your deadline was this past Wednesday, April 17). If you forgot to file or request an extension in time, you’re now officially late in filing your 2018 taxes. But what does that even mean? What happens if you forgot to file taxes on time? We’ll walk you through the consequences of not filing on time and what you can do about it.
If you forgot to file, you could face the pesky failure-to-file penalty.
The IRS may assess the failure-to-file penalty to any taxpayer who does not file by the deadline and who has an outstanding tax balance. The failure-to-file penalty is 5 percent of your unpaid taxes for each month your tax return is late (up to 25 percent). You’ll also get plenty of reminders from the IRS to file your taxes.
Think you can avoid this penalty by filing today? Unfortunately, it starts accruing the day after the deadline.
If you owe taxes, the IRS could hit you with extra penalties, interest, and worse.
Forgot to file taxes and have an outstanding tax bill? If you didn’t pay the IRS the full amount of taxes owed, you could be facing a failure-to-pay penalty. If you’ve got the failure-to-file and the failure-to-pay penalties running at the same time, they’ll cap at 5 percent of your unpaid taxes per month.
As far as penalties go though, this year you could be in luck. More people than ever are expected to have underpaid the IRS, thanks to the reform affecting 2018 taxes. To help combat this issue, the IRS has expanded their relief from their underpayment penalties.
If this isn’t your first year forgetting to file your taxes, your consequences could be a lot more severe. In addition to even more penalties, you could face wage garnishment and other levies. The IRS could even take you to court. Now luckily, the IRS won’t take those drastic actions without warning, but it’s still important to remember how serious the IRS can be.
Owe more than you can pay? There are always options like a payment plan or an offer in compromise that you could qualify for.
Say goodbye to your refund until you file.
Got money waiting for you in the form of a tax refund? The good news is that you won’t face the failure-to-file penalty.
The bad news: Unless you file your taxes within three years of the corresponding tax filing deadline, you can kiss that cash good-bye. In 2013, taxpayers who didn’t file left $1 billion in unclaimed federal income tax refunds on the table. And that’s generally cash that people worked hard for but ended up overpaying the government with.
If your choice is filing ASAP or losing money, you’ll want to choose filing every time.
The IRS will consider reasonable causes for not filing by the deadline.
If you’ve got a good reason for not filing your taxes on time, the IRS might hear you out. They must determine whether your reason for not filing on time is sound and established (with proper documentation) before waiving or reducing any penalties. These reasons include:
- Death, serious illness, incapacitation or other absence of the taxpayer or an immediate family member.
- Fire, natural disasters, casualty, or other similar disturbances.
- Inability to get important tax records.
- Other reason that shows you genuinely attempted to meet your tax obligations but could not.
Note that not having enough money to pay isn’t a listed reason for not filing or paying on time. The only exception here is if the reason you don’t have the money to pay is similar to the ones above.
Even if you have a good reason, the IRS typically doesn’t waive any accrued interest on your balance. If the IRS charged interest on a penalty that they are reducing or removing due to reasonable cause, they can reduce or remove that specific interest.
So, what should you do if you forgot to file taxes?
Easy – you should file those taxes ASAP. The sooner you file, the sooner you get your refund. And if you owe the IRS money, the sooner you file, the lower your tax bill.
When paying right away isn’t an option, tax pros can help negotiate with the IRS on your behalf. Our tax professionals are always available to ensure your unfiled taxes are handled quickly and accurately. Tax Defense Network by MoneySolver has been helping individuals and businesses deal with tax issues with the IRS for over a decade, and there’s little we haven’t been able to help with. If your situation is fixable without our services, we’ll let you know that up front, too. Start with a free consultation today.
How Do I File a Tax Extension Before the Deadline?
April 11, 2019
It’s not just you; it really does feel like the first few months of 2019 have flown by. We’re finding it hard to believe the federal tax deadline is next week! If you’re in the same boat and don’t know how you’re going to get your taxes filed in time, there’s no need to stress. A simple tax extension can give you the time you need. And rest assured, lots of people will need one this year. In fact, a record 14.6 million requests for filing extensions are expected this tax season. So, if you’re not sure how to file a tax extension, here’s our guide to getting that extension submitted on time.
When Is the Tax Deadline Again?
Unless you live in Maine or Massachusetts, you have until April 15, 2019, to file your federal tax returns. If you are a resident of Maine or Massachusetts, you’ve got until April 17 to file thanks to two legal holidays.
What Happens If I Don’t File a Tax Extension?
If you don’t file your tax return by the due date (or by the extended due date if you had an approved extension), you face the wrath of the IRS in the form of the failure-to-file penalty. This is a five percent per month penalty on any unpaid tax balance you have. This penalty is charged each month (or even part of a month) that the return is late, for up to five months. Even if you file your return less than 30 days late, the failure-to-file penalty will apply for the whole month.
Didn’t file your extension on time and owe taxes? You can also receive a failure-to-pay penalty along with your failure-to-file penalty. If you have both these penalties running simultaneously, the IRS limits their combination to 5 percent overall. But let’s be honest: no one wants two IRS penalties at the same time.
Some people are afraid to file an extension because they think it could trigger an audit. However, the IRS encourages taxpayers to file for an extension if needed to help reduce tax-filing errors.
OK, but How Do I File a Tax Extension?
You can file for a six-month tax extension using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The IRS will review and hopefully approve your extension. Once you’ve gotten that approval, you’ll have until Oct. 15, 2019, to file your federal tax return.
You can either fill this form out and mail it to the IRS or you can submit it using a Free File software company. Some of these companies will also help you estimate what you’ll owe the IRS, so you can pay on time.
Whichever way you choose to submit Form 4868, make sure you do so by the due date of your return.
Remember: An extension to file is not an extension to pay.
Just because you have an extension on filing your taxes doesn’t mean you’ll have an extension on paying any taxes you owe this year.
What does this mean for you? If you don’t pay the taxes you owe by the April deadline, you stand to face the interest charged on any unpaid tax balance. The IRS might also hit you with an underpayment penalty or a failure-to-pay penalty on any overdue taxes. However, some taxpayers may have a break from these penalties because of the recent tax reform. The Treasury Department has stated that they will allow taxpayers who paid at least 80 percent of their tax bill during the year to avoid paying penalties.
Also, if you’ve gotten an extension and you pay at least 80 percent of your actual tax liability by the actual April tax deadline, you can avoid a failure-to-pay penalty. How? You’ll need to make sure you pay the remaining balance by your extended due date of Oct. 15.
Even if you do owe, filing your extension will at least help you dodge a failure-to-file penalty. And since the failure-to-file penalty is usually higher than the failure-to-pay penalty, you’ll be dodging a much more financially-burdening bullet.
Will I Still Get My Tax Refund?
Unfortunately, no tax return = no refund. You won’t get your refund until you file your return. The IRS must process your return before determining if you’re due a refund.
Don’t let the confusing tax law changes cause you to incur a failure-to-file penalty. Especially if you’re a business owner, you’ll want to make sure you’re taking the time to make the most of your taxes. The best way to get some extra time is by filing an extension today.
Need help filing your return and maximizing your deductions? Our tax professionals are ready to help.
The Tax Prep Checklist You’ve Been Waiting for
February 14, 2019
Preparing your 2018 tax return never seems like an easy feat. It often feels easier to just put off your tax preparation. And sure, procrastination can keep a tax headache at bay for a little while. But you’re still better off taking care of your taxes sooner rather than later. In the face of a recent government shutdown and newly applicable tax reform, being prepared with a handy tax prep checklist has never been more important.
Why should I use a tax prep checklist?
Even if you’re having a professional tax preparer complete your tax return, a tax prep checklist can definitely come in handy. Using a checklist will help ensure you have all the information and documents needed to file.
You’ll need to gather forms and documents that fall into the following categories:
- Personal information
- General income
- State & local taxes or sales tax
- Homeowner/Renter information
- Medical expense & health insurance
- Education expenses
- Childcare expenses
- Retirement expenses
- Charitable donations
- Alimony paid
- Federally declared disaster
- Tax preparation
Aside from helping you organize your documents and forms, tax prep checklists will also help get you in the right frame of mind to start filing. Kick procrastination to the curb by using your own tax prep checklist.
Click here or on the image below to view and download our Individual Tax Prep Checklist.
How should I use this tax prep checklist?
Move down the list slowly, finding documents you need and storing them safely in a folder meant for your 2018 tax documents. Keep in mind that you may not need every form and document listed on the checklist. Feel free to mark off any of these unnecessary items for you so you can focus on the forms you do need.
If you need any help with filing your taxes, our team of tax experts is always available to help!
The Biggest Withholding Tax Mistake You Could Make This Year
February 4, 2019
It’s a mistake that 21 percent of taxpayers could have made this year. Thanks to the Tax Cuts and Jobs Act that was signed into law in Dec. 2017, some people may owe more to the IRS this year than ever before depending on their tax bracket and filing situation. Why? They may have made a major tax withholding mistake.
While the Treasury Department and the IRS updated their withholding tables to offer a guideline to how much income taxes need to be deducted from your paycheck, some people did not change their tax withholding amounts accordingly. And if you’re one of these people, you’ll have an unfortunate surprise ahead of you come filing time.
Here’s what you need to know about withholding tax:
What is it?
Withholding tax is when your employer takes taxes directly out of your paychecks to send to the IRS and any state tax authorities for you. Employers do this in an attempt to leave you even with any tax collectors by the end of the year. If more tax is withheld than necessary, you’ll end up with a tax refund when you file your taxes.
When it comes to refunds, giving the government what is essentially an interest-free loan isn’t ideal. Still, it’s better than what happens if not enough tax is withheld.
What happens if I didn’t withhold enough taxes?
If you’re part of the 30 million people who didn’t withhold enough taxes in 2018, you may be in for a not-so-pleasant surprise when you go to file. If you didn’t withhold enough taxes, you’ll end up owing a big tax debt when you file your taxes (and potentially getting slammed with an underpayment penalty).
Tax bill too big for you to pay immediately? Don’t worry – there’s always options available to you. You can work with a tax professional to figure out a way to pay that will work for your unique situation.
Is there anything I can do to fix it now?
Unfortunately, you can’t change your withholdings for 2018 now that the year is over and done.
However, this is the perfect opportunity for you to update your withholdings for 2019. Since the withholding table has no foreseeable updates in the near future, you should make time with your tax preparer to review your withholdings. You can also use the IRS’s handy withholding calculator to check your tax withholding. If you need to make changes, update your W-4 form and give this updated version to your employer.
Performing a paycheck checkup now will help you ensure you’re paying the right amount in taxes throughout the year. Take some time to check your tax withholdings now to ensure you’re not left with a hefty tax bill (or an unnecessarily hefty tax refund) come filing time in 2020. If you need help figuring it out, give us a call. Our tax prep experts are always here to help you file timely tax returns to optimize tax breaks and avoid mistakes the first time.
5 Tax Tips to Get You Through the IRS Shutdown and Its Wake
January 24, 2019
“But if the government is shut down, can’t I just wait to file my taxes or pay back my tax debt?” This is one of the most dangerous thoughts you can have during the shutdown. The IRS shutdown mode should not keep you from dealing with your taxes or tax debt. The government may be able to shut down, but you can’t shut down taxes or tax debt. With tax season beginning next week, we’ve put together a simple guide to help you prepare to deal with your taxes and tax debt during and after the IRS shutdown.
Here are some tips to help you make your way through this IRS shutdown and the aftermath:
1. Gather all your tax forms.
Make sure all your tax forms arrive on time. If they don’t, make sure you check your records to ensure you didn’t receive any missing forms earlier than expected.
If you still cannot find some of your necessary forms, be sure to reach out ASAP to the responsible party. The IRS may not be available by phone due to the shutdown. So, you will want to put extra effort into contacting the issuer of the form you need. If you’re missing a W2 form, be sure to contact the responsible employer before considering reaching out to the IRS. You’ll want to make sure you have all the tax forms needed before you file, otherwise you could be at risk for an audit.
2. File as soon as you can.
Once you have all your tax forms, don’t hesitate to start filing. The deadline to submit personal tax returns for most of the nation is April 15, 2019. The only exceptions to this deadline are for Maine and Massachusetts residents, who have until April 16 to file, and District of Columbia residents, who have until April 17.
If you do think you’ll need an extension past these deadlines, you can seek one from the IRS or state taxing authority. Just keep in mind that an extension is an extension to file, not to pay. So if you owe, you must pay on time. You’ll want to keep a copy of your extension too as proof that you filed one.
Also, you should consider e-filing this year. The IRS has strongly encouraged taxpayers to file their returns electronically in order to minimize errors and receive faster refunds.
3. Check online before you call.
The average wait time for the IRS between April 2016 and April 2017 was about 70 minutes. Even with the IRS bringing back 36,000 furloughed workers to work without pay, there’s no telling how long wait times will be now during and after the government shutdown. If you do call, you’ll need to maintain plenty of patience.
And if you were thinking of going to a walk-in taxpayer assistance center (TAC) or sending the IRS something via mail, you’ll be out of luck. The TACs are closed during the IRS shutdown and the IRS has said they will be responding to mail “to only a very limited degree during this lapse period.” Your best bet will be to use the IRS’s online resources to address any questions you have.
4. Get ready for the rigor of audits and collections once the shutdown ends.
During the IRS shutdown, they won’t be conducting audits or actively engaging in collection activity. You’ll still get automated initial contact letters about audits and any automated collection activity will continue. Just because they won’t be auditing or partaking in collection activities doesn’t mean you should put your feet up and relax.
In fact, this is the perfect time for you to prepare yourself and your paperwork for the inevitable. The government can’t stay shut down forever. And once the IRS is up and running again, they’ll be starting up those audit and collection processes in full force. You don’t want to be caught unprepared for something like that. Make sure you find tax audit help as needed and start looking into ways to stop those collection activities.
5. Don’t wait to take action on outstanding tax debt.
A government shutdown may seem like the perfect time to avoid your tax debt. It gives you so many excuses not to resolve your IRS bill: it’s hard to reach the IRS, they won’t be pursuing you actively, you may not be getting paid if you’re a furloughed government worker or third-party government contractor, etc.
Don’t let any of these excuses stop you from taking that first step towards freedom from tax debt. Instead, take this moment to confront your tax debt and explore ways to find relief. Our tax professionals can walk you through ways to get tax relief help during a free consultation. And if you’re struggling with tax debt, why not enter our #PayMyTaxes Contest for your chance to win up to $50,000 towards your IRS bill? Click here to apply to the #PayMyTaxes Contest.
At the end of the day, this IRS shutdown has come at an unfortunate time, coinciding with the first tax season that includes all the tax reform changes that came with the Tax Cuts and Jobs Act. If you need any help figuring out your taxes or finding back taxes help, our team is always here to help.
The Government Shutdown: What It Means for Your Taxes & Student Loans
January 16, 2019
It’s been all over the news. We are currently in the midst of a government shutdown. Now that sounds bad, what does it really mean? And more importantly, what does it mean for taxpaying Americans and student loan borrowers? Let’s dig into it.
What is a government shutdown?
A government shutdown is pretty much what it sounds like; during a shutdown, nonessential offices of the government are closed. Government shutdowns occur when there is no approval on the upcoming year’s federal budget. If no agreement is reached on the budget, many operations that are federally run will close down (like national parks and museums).
Any nonessential federal employees will be put on unpaid leave (or “furloughed”). Essential federal employees may have to work without pay. Certain organizations may stay open by running on their cash reserves but only as long as those reserves last. Until a compromise is reached, the shutdown will persist.
What’s up with the current government shutdown?
The current government shutdown began on Dec. 22 and was caused over the inclusion of $5 billion in funding for a border wall. This shutdown is technically a partial shutdown because some departments of the federal government are still funded (e.g., The Department of Defense, Social Security, Medicare, and Medicaid). However, the shutdown has affected 800,000 federal workers and even more third-party government contractors who may be left without work or pay. This could have serious implications if it isn’t ended soon. As of Jan. 12, this government shutdown is the longest one since 1973.
How will taxpayers be affected?
Currently, only 12% of the IRS’s approximately 80,000 employees are still working.
For those concerned about tax refunds, we’ve had some reassurance from the IRS. The IRS has stated that they expect to open the filing season on Jan. 28 and that they intend to provide refunds as scheduled. To do so, they plan to bring back a good amount of their currently furloughed workers to process refunds with no pay. As of Tuesday, Jan. 15, the IRS announced that they expect to have 46,052 employees for tax-filing season, or about 57 percent of its total workforce.
Still, certain IRS services like answering taxpayer questions will be severely impacted. Most of the workers on unpaid leave are representatives who respond to taxpayer’s calls, so you may have a hard time getting in touch with someone to answer your questions. The IRS receives more than 95 million calls on its toll-free lines every year. And with the recent tax complications from the Tax Cuts and Jobs Act, there will likely be even more taxpayers calling for help.
With services stinted by the shutdown, it’s unclear how the IRS will be able to provide proper assistance to taxpayers.
What can taxpayers do?
File on time. Don’t let the government shutdown keep you from filing as early as you can when you’re ready. The filing deadline to submit your 2018 tax return is Monday, April 15, 2019, for most taxpayers. However, taxpayers in Maine or Massachusetts have until April 17, 2019, to file their returns due to the Patriot’s Day holiday and the Emancipation Day holiday.
If you have questions about the tax reform changes or your taxes in general, do not expect that the IRS will be readily available by phone to answer any questions. You’ll be better off asking any questions to your tax preparer instead. Here are some helpful tips to get you through the government and IRS shutdown.
How will student loan borrowers be affected?
For most borrowers, the shutdown still means business as usual. The Department of Education is fully funded. So, it can still disperse grants and federal student loans and collect student loan payments.
But there are some other ways the government shutdown could impact student loan borrowers:
- Qualifying for or staying on Income-Driven Repayment Plans: Borrowers may have difficulty qualifying for or staying on Income-Driven Repayment Plans (IDR) plans since the IRS has significantly reduced its activities during the shutdown. These plans require borrowers to provide their student loan servicer with proof of income, which comes from the IRS.
- Applying for aid through the FAFSA: Some students who fill out the Free Application for Federal Student Aid (FAFSA) must prove their income, which again, typically comes from the IRS. With the IRS operating at those minimal levels, it may be difficult to retrieve a tax transcript to verify income.
- Paying student loans as a government worker: Any furloughed government workers who have student loan debt may struggle with repayment. They may have to change their repayment plan or even enter forbearance or deferment if they cannot afford their payments.
What can student loan borrowers do?
Keep making your payments on time! Just because the government is shutdown doesn’t mean you can stop paying your loans.
Are you applying for aid through the FAFSA and having trouble providing verification of income? If so, the Department of Education has announced that institutions may accept a signed copy of your 2016 or 2017 income tax return (as applicable) to verify your income. This should keep you from having to wait for a response the IRS.
The IRS has also announced that they will resume processing request for tax transcripts. Since they’ll have to get through the backlog of requests sent since the shutdown began, the IRS will need more time than usual to process requests. So if you’ve sent in a tax transcript request for proof of income, you may have a wait ahead of you.
Struggling to make your student loan payments because you’re an affected government worker? Your best bet is to call your student loan servicer to discuss your options. Don’t let this difficult time lead to default.
The government shutdown can be overwhelming. Even though some resources are unavailable currently, there are constantly new developments coming to light.
Disclaimer: The viewpoints and information expressed are that of the author(s) and do not necessarily reflect the opinions, viewpoints and official policies of any financial institution and/or government agency. All situations are unique and additional information can be obtained by contacting your loan servicer or a student loan professional.
How Virtual Money Can Cause Real Tax Damage: What to Know About Bitcoin Taxes
October 10, 2018
Bitcoins: they’re so hot right now. You’ve heard all about this type of cryptocurrency (or virtual money) investment. People are raving about how much Bitcoin value has grown since its start. They can’t stop talking about how this interesting cryptocurrency phenomenon could be changing our economic landscape. Amidst all the sensationalized information about Bitcoin, there’s one thing that has gone unspoken for too long: Bitcoin taxes. Here’s what you need to know about these wild digital coins and what implications they could have for your taxes.
What is a bitcoin?
Bitcoins are a virtual currency, which means there are no physical bitcoins. You can use bitcoins to pay for goods or services or to hold as an investment. Bitcoins operate on a peer-to-peer exchange system. This involves using computers to track and log details of every transaction. Like any cryptocurrency, bitcoins are not issued or backed by any banks or governments, so transactions allow users to remain anonymous. Even though it’s not legal tender per se, Bitcoin has seen huge surges of popularity and sparked the creation of other forms of cryptocurrency.
How much is a bitcoin worth?
When bitcoins first came out in 2009, they were worth next to nothing. The first price increase happened in 2010 when bitcoins jumped from $0.0008 to $0.08 for a single bitcoin. Since then, its price and trading history have been very volatile. Most recently, it has seen a high of $17,900 per bitcoin in Dec. 2017, which was followed by a quick, dramatic decrease to $5,900 in Feb. 2018. Upon publishing this blog post, bitcoins are at about $6,500. The current price can be found here.
So why does the IRS care about bitcoins?
Bitcoin’s burst in popularity has lead to an explosion of billions of dollars in wealth. And the federal government is concerned that they’re not getting their cut. So in 2014 after a huge Bitcoin value hike, the IRS announced that they view bitcoins as property, which means that any tax rules that apply to property transactions also apply to transactions involving Bitcoins.
Interestingly enough, only 802 tax returns of the 132 million filed electronically in 2016 reported cryptocurrency income. So there are many people dabbling in bitcoin who are not reporting these transactions to the IRS. The federal government is not pleased and is determined to regain any Bitcoin taxes.
Why should I care about Bitcoin taxes?
In 2017, the IRS went after Coinbase, Inc., a large “digital wallet” company that allows users to buy, sell, and transfer Bitcoin. The court ruled that the IRS could gather data on all 14,355 Coinbase, Inc. customers. Since only 802 electronically filed tax returns in 2016 reported cryptocurrency, the majority of those 14,355 customers didn’t report their bitcoins. With this data in hand, the IRS will be following up with any Coinbase customers.
What could happen if I haven’t paid taxes on my bitcoins?
If you were a Coinbase customer and you haven’t paid taxes on your bitcoins, you should expect a letter in the mail from the IRS (if you haven’t gotten one already). This letter could be a notice of deficiency, to inform you that you haven’t paid enough on your taxes because of your bitcoins.
The IRS wants what they’re due. Besides looking to regain any Bitcoin taxes, they are also trying to find intent to prove tax evasion in people who didn’t report their bitcoins. And if they find you guilty of tax evasion, you could end up in jail. And while Bitcoin may be trendy right now, prison stripes are never cool. So make sure you pay back the IRS what they’re owed and continue to correctly report your bitcoins and other cryptocurrencies.
The moral of the Bitcoin taxes story
Just because your money is virtual doesn’t mean it’s free from taxes – or from the eyes of the IRS. The federal government wants more compliance but may run into issues taxing all bitcoin gains since lots of trading is done on overseas exchanges. Still, reporting on your cryptocurrency isn’t optional. There may not be the same regulation around reporting on bitcoins as there is around reporting stock sales, but it’s still the same concept. It’s still income and as such, the IRS needs to know about it.
If Bitcoin taxes have you scratching your head, you can always consult a tax professional who has experience with cryptocurrency to help you figure out the next steps.
Gambling Taxes: Report Your Winnings with Form W-2G
August 21, 2018
Lucky you! Maybe you won rolling dice, playing cards or betting on ponies. No matter how you won, you definitely had some cash flow coming in from gambling this year. There’s just one catch: Gambling income (including winnings in a jackpot, race, raffle, or contest) is considered taxable income and must be reported on your tax return. Did you win a car or another noncash prize? Then the fair market value will be taken into account for purposes of reporting and withholding. Gambling taxes can be a little confusing, so let’s clear some things up.
What is Form W-2G and how do I get it?
If a large amount is won in gambling, the organization that is paying the winnings sends Form W-2G, Certain Gambling Winnings, to the winner. This form reports the amount of your winnings to you and the IRS. The payer must send Form W-2G only if the winner receives:
- $1,200 or more in gambling winnings from bingo or slot machines
- $1,500 or more in proceeds (the amount of winnings minus the amount of the wager) from keno
- More than $5,000 in winnings (reduced by the wager or buy-in) from a poker tournament
- $600 or more in gambling winnings (except winnings from bingo, keno, slot machines, and poker tournaments) and the payout is at least 300 times the amount of the wager, or
- Any other gambling winnings subject to federal income tax withholding
You’ll also receive a Form W-2G if the payer withholds federal income tax from your winnings.
When the winnings are shared by more than one person, or when the person receiving gambling winnings is not the actual winner, Form 5754, Statement by Person(s) Receiving Gambling Winnings, is used instead of Form W-2G. Typically, the person receiving the winnings must furnish all the information that Form 5754 requires. You won’t send Form 5754 to the IRS. You’ll keep a copy for your records and return the form to the payer for preparation of Form W-2G for each person listed as winners.
Deducting gambling losses
Gambling losses can be deducted by itemizing your losses on line 28 of Schedule A, Form 1040. Just remember, you cannot deduct more than your winnings.
To find out how to claim your gambling winnings or deduct your gambling losses, you may use this 10 minute IRS interview. When using this resource, you will need:
- The amount of your gambling winnings and losses
- Your filing status
- Any information provided to you on Form W-2G
Recordkeeping for gambling taxes
If you receive Form W-2G, pay gambling taxes on your winnings, or deduct your losses, it is important to keep an accurate record of the precise amounts involved. In order to verify the amounts, you will need to keep the receipts, tickets, statements, etc. of each win and loss. It is also helpful to keep a journal or record of your activity. Overall, you want to be able to show your winnings separately from your losses.
Still baffled by gambling taxes? A tax professional can help you figure out the best way to optimize your tax savings when reporting your winnings and filing your taxes.
The Dangers of Mixing Business and Personal Expenses
August 20, 2018
Mixing business and personal sounds like fun, but it can be pretty messy. When you’re mixing business and personal expenses, you’re putting yourself at major risk for an IRS audit, which is the opposite of fun. To ensure you don’t end up with a stressful audit, you should know how to define and separate business and personal expenses.
Business expense vs. personal expense
According to Publication 535 from the IRS, a business expense must be “both ordinary and necessary”. An “ordinary” expense is one that is common and accepted in your trade or business. A “necessary” expense is one that is helpful and appropriate for your trade or business.
For example, say you’re self-employed and running a cooking website as a small business. You can write-off the fancy cutlery you bought (if you’re using it for your business). But you couldn’t write-off a new television. You can deduct business expenses even if they are not indispensable to your business.
If you deduct personal expenses as business expenses, the IRS may conduct an audit. They may then ask you to remove the incorrect deductions and pay the balance.
Generally, you cannot deduct personal, living, or family expenses on your tax return. But what if you have an expense that is partly business and partly personal? You can divide the cost in half, and deduct one half as a business expense.
Avoid triggering an IRS audit
When you’re mixing business with personal expenses, your personal expenses can get confused with your business expenses. Sometimes it seems innocent, like extending a business trip for a week to include a vacation. But danger lurks when you are unsure of what you can deduct as a business expense, or you find yourself in a gray area.
In order to be certain you don’t trigger an IRS audit, consider the following:
- Never use your business credit or debit card for personal expenses.
- Keep business and pleasure trips separate. If combined, keep particular days for business and other days for family/friends.
- Don’t be tempted to write-off personal purchases (e.g., games, printer, computers, etc.) as a business expense unless you are using them to make a profit.
Other dangers of mixing business and personal expenses
Deducting business expenses as personal has another big danger: back taxes. If the IRS discovers that you deducted personal expenses as business expenses, they may charge a penalty for claiming false deductions and demand payment of the balance with penalties and interest if the filing deadline has passed. The unpaid balance after removing the false deductions will be treated as back taxes if you do not pay them before the filing deadline.
Instead of sorting out expense receipts later, it is advisable to separate your business and personal expenses for better organization and less stress at the time of tax return preparation.
FBAR versus FATCA Form 8938: Reporting Overseas Assets
July 16, 2018
Having assets in a foreign bank account may sound very mysterious and exotic. However, it can lead to lots of confusion practically when it comes to reporting overseas assets to the IRS.
There are many similarities between the Foreign Bank and Financial Accounts Report (FBAR) and IRS Form 8938 (required under the Foreign Account Tax Compliance Act, or FATCA), which has caused even more confusion among taxpayers. There is certain information that you must report on both FBAR and Form 8938. But Form 8938 requires information that isn’t included in an FBAR, like details on other foreign financial assets and income.
Do you have a financial account at a foreign branch of a U.S. financial institution? If so, you do not need to file FATCA Form 8938, but you do need to file an FBAR. If an FFI (Foreign Financial Institution) holds the account, then you need to file both Form 8938 and an FBAR.
Who Needs to File When Reporting Overseas Assets
Resident aliens of U.S. territories and U.S. territory entities must file FBAR, but not Form 8938. Filing Form 8938 is mandatory for those U.S citizens, resident aliens, and certain non-resident aliens that have an interest in certain foreign financial assets and meet the reporting threshold set by the IRS.
The filing threshold for FBAR is $10,000. If the value of your assets during a calendar year reaches $10,000 at any time, you will need to file an FBAR when reporting overseas assets.
Form 8938 has a different filing threshold. The amount of foreign assets for a tax year must be $50,000 on the last day of the tax year or reach $75,000 at any time during the tax year. These thresholds are for those filing separately. Married filing jointly and individuals living abroad have a higher filing threshold.
What You Must Report
For FBAR, you need to report if you have sufficient interest in a financial entity and/or have the authority to control the assets. You’ll need to report the maximum value of financial accounts maintained by a financial institution that is located overseas.
For FATCA Form 8938, you must report if you have any income, gains, losses, deductions, credits, gross proceeds, or distributions from holding or disposing of the account or assets that need to be reported on your tax return. You’ll need to report the maximum value of certain specified foreign financial assets. These include financial accounts in FIIs and certain other foreign non-account investment assets.
How to Report
You can file FBAR electronically using the BSA E-Filing System. It’s important to know that you never file an FBAR with a tax return. On the other hand, you always file Form 8938 with your income tax return.
If you have any questions about reporting overseas assets, contact us and one of our tax professionals can help you ensure a correct and compliant filing.
Rip-off Tax Preparers & How to Spot Them
March 16, 2018
When you take your taxes to a professional, you’re expecting to gain the peace of mind that comes with correctly prepared taxes. However, while you think you are doing the right thing, you may find out months later there were too many deductions claimed or the numbers didn’t fully add up on your return. This is what we call an unfortunate encounter with rip-off tax preparers.
Rip-off Tax Preparers: Who Are They?
During the peak of tax season, you can’t avoid seeing them. The young kids dressed as Lady Liberty or Uncle Sam are stationed in front of every shopping mall, holding signs coaxing taxpayers to come in and have their taxes prepared. Many of these establishments are legitimate and established, but some have just set up shop with only one goal: to get you the biggest refund possible by any means necessary.
Getting a big return is great, right? Not necessarily. The way these shops rake in money is by charging you a percentage of your refund. So the bigger the refund, the more they can charge you. There are plenty of these rip-off tax preparers around, all promising large refunds while preparing clients’ taxes fraudulently.
A former detective in Fort Pierce, Fla., along with his wife and business partner, prepared taxes for their community at their Premium Financial Services business for years until they were indicted on charges of tax fraud. The trio claimed false tax deductions on their clients’ returns in order to intentionally rip-off the United States government for upwards of $500,000. Furthermore, clients were faced with a tax debt because of the rip-off.
A man from Jacksonville, Fla., is now serving prison time for a First-time Homebuyers credit rip-off he pulled for clients who had not bought a home, and/or had no plans to buy a home. He also claimed fraudulent business and work expenses, resulting in $216,000 in tax credits claimed over the course of two years. Of course, he charged his clients a $1,000 tax preparation fee, but many were glad to pay it because of the large returns they were receiving.
Rip-off Red Flags
Taxpayers are not always aware of the red flags they should look for when getting a professional to prepare their tax returns. We have identified five main things to consider when having your taxes prepared:
1. Check to see how long your tax preparer has been in business.
Fly-by-night shops and those set up seemingly overnight are the usual suspects.
2. Check all credentials of the professional preparing your taxes.
They should be proud to show you their degrees or certificates. If not, run.
3. Check to make sure the professional has signed your return.
If they do not want to attach their name to your taxes, then you shouldn’t either. Remember, once you sign the return, any resulting liabilities are your responsibility.
4. Never sign a blank return.
5. Beware of tax preparers whose fee is a percentage of your refund.
They have more motivation to prepare your taxes with erroneous claims.
If you are a victim of a tax preparer rip-off, we can help. At MoneySolver, our goal is to help taxpayers resolve their IRS debt quickly and affordably.
4 Questions to Ask When Filing a Paper Tax Return
February 11, 2018
File the Old School Way with a Paper Tax Return
Love the feeling of pen on paper? You’re not alone. A large number of taxpayers still prefer to file a paper tax return, even though the IRS prefers e-filing. For those who are not computer savvy, paper filing is preferable to electronic filing. If you are more comfortable filing a paper tax return, reviewing the following IRS online services may simplify the seemingly complex process of preparing and filing your return.
1. “Do I need to file a tax return?”
If you are unsure of whether or not you’re required to file, you may use the ‘Do I Need to File a Tax Return?’ tool on the IRS’s website to determine the criteria. You will need your filing status, federal income tax withheld, and basic information to help you determine your gross income.
2. “What is my filing status?”
Your filing status can affect your standard deduction, eligibility for certain credits, tax liability and filing requirements. If you are eligible to use more than one filing status, you may determine the one that saves you the most in taxes using the IRS service, ‘What Is My Filing Status?’.
When you use this service, you will need your marital status, and the percentage of the costs that your household members paid towards keeping up a home. If your spouse is deceased, you also need your spouse’s year of death.
3. “Where can I download tax forms?”
To obtain tax forms, including Form 1040, Form W-9, Form W-4, Form 9465, Form 8962, Form 941, and Form 1040-EZ, you can use the IRS Forms and Publications page. Tax forms and publications for individuals and businesses are available for download and print. The IRS also provides prior year forms, instructions, and publications for download and print.
If you do not find a tax form that you need in order to file, you may request the form(s) by U.S. mail. You may order up to 100 different products and up to 100 copies of each form you order.
4. “Where can I file a paper tax form?”
Depending upon the tax form you are filing and your state, the mailing address changes. If you are filing Forms 1040, 1040A, 1040EZ, 1040ES, 1040V, amended returns, and extensions (also addresses for taxpayers in foreign countries, U.S. possessions, or with other international filing characteristics), you can use this IRS page to find out the address to which to send the paper return.
You may check the status of your refund on the IRS service ‘Where My Refund?’ four weeks after you mail your paper return.
If you need any help while filing your paper tax return, contact a tax professional who can help you file a timely and compliant tax return.