How to Make IRS Payments for Your Taxes
September 26, 2019
It’s 2019, but the IRS won’t accept your Bitcoins, 3-D printed money, or Venmo. When you owe after filing tax returns or have back taxes to deal with, you to have to make IRS payments with actual money, but how?
The IRS ensures there are multiple ways to pay them back. While you can go through the hassle of making an appointment at your local Tax Assistance Center to pay in cold hard cash, there are easier ways to pay up without having to leave the house.
Electronic payments are the most popular and preferred payment method, used for 89 percent of returns in 2018. But if you’re a taxpayer who prefers to pay offline, you’ve got choices, too.
Review these payment options to figure out how to make IRS payments that work for your financial situation.
The 4 Easiest Ways to Make IRS Payments
1. IRS Direct Pay
For making payments to the IRS as an average taxpayer, one simple method is IRS Direct Pay.
IRS Direct Pay can be used for filing individual tax bills or making estimated tax payments directly from your checking or savings account to the IRS. This feature has the added advantage of being free of charge.
To use Direct Pay, you need to have a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN).
While you can use IRS Direct Pay to make an online payment on your regular web browser, you can also use Direct Pay on the IRS2Go app on your mobile device. You can find the free IRS2Go mobile app on Google Play, the App Store, or Amazon.
If you request it, you will get a confirmation notification via email as soon as you make a payment using Direct Pay. The bank account information you provide is not stored in the IRS systems.
Direct Pay does have some limitations. It is only available Monday through Saturday from midnight to 11:45 p.m. ET and Sunday from 7 a.m. to 11:45 p.m. ET.
The system for Direct Pay does not save your information, so you’ll have to re-enter everything if you return to make another payment. You also cannot make more than two payments within a 24-hour period.
2. Electronic Federal Tax Payment System (EFTPS)
Another secure payment method offered by the government is the Electronic Federal Tax Payment System (EFTPS). Both businesses and individual taxpayers can use EFTPS to pay their taxes.
You must have a secure Internet browser with 128-bit encryption to access the EFTPS website. To log on and enroll, you must have the following three items:
- EIN or SSN
- EFTPS Personal Identification Number
- Internet Password
Once you enroll, the EFTPS system will save your information so it’s easier to make payments in the future.
For payroll taxes, businesses must use EFTPS for deposits. Otherwise, you could be penalized.
EFTPS is highly suggested for large payments. Using EFTPS, you can make income tax payments, employment tax payments, and estimated and excise tax payments.
This payment method is free to use, and you’ll receive confirmation emails with every transaction you make. Another similarity to Direct Pay is that you can cancel or edit payments up to two business days before the scheduled payment date.
The site is available 24/7 and can be accessed via computer or smartphone. Additionally, you can schedule payments for up to 365 days in advance.
3. Payment by Check or Money Order
Not a fan of paying online? You can pay via mail with a check, money order, or cashier’s check made payable to the U.S. Treasury.
Make sure to include the following information on your check, money order, or cashier’s check:
- Your name
- Social Security number
- Daytime phone number
- Tax year
- Tax form or tax notice number
You’ll want to send this form of payment along with a completed Form 1040-V. Don’t staple or paperclip the check or money order to this form.
Be sure to mail both the form and payment method to the address that corresponds to your state listed on Form 1040-V.
4. Payment by Credit or Debit Card
To process payments made by debit or credit cards, the IRS uses standard service providers and business/commercial card networks. The three payment processors they use are PayUSATax, Pay1040.com, and Official Payments.
The provider will charge a fee, which varies based on the service provider used. This processing fee may also be tax-deductible depending on your situation. No part of the service fee goes to the IRS.
Keep in mind that you usually can’t cancel payments made by debit or credit card.
Not all tax forms are payable this way and some higher tax debts may require some extra coordination with your provider. However, it’s an easy way to settle your tax debt and gain some quick peace of mind.
What to Do If You Can’t Make Your IRS Payment
If you aren’t able pay the IRS for any reason, you’re not out of options.
You may be able to qualify for an IRS installment agreement. This payment plan would allow you to make regular payments that are more affordable for you than your entire balance at once.
Depending on your circumstances, you also could be eligible for an Offer in Compromise, which could let you settle your tax debt with the IRS for less than you owe.
To figure out what options you qualify for, contact us. One of our tax professionals can help you find the best tax debt relief solution for your situation.
How Much Do I Owe the IRS? 4 Ways to Find Out
July 26, 2019
No one wants to owe the Internal Revenue Service. Ideally, you’d pay the exact right amount of income taxes and be on your way without a second thought. Or maybe you’d just end up with a surprising but welcome tax refund once you file. But that’s not always what happens.
Sometimes, an unexpected amount of back taxes can pile up. You may know you have a federal tax balance but still wonder, “How much do I owe the IRS?” Don’t wait for those scary IRS notices to find out. We can help you figure it out, using one of four easy methods.
1. Use the IRS’s handy online system
Back in Dec. 2016, the IRS released an online tool for taxpayers. This tool acts as a portal for you to view your account with the IRS. You’ll be able to see your payoff amount, the balance for each tax year that you owe, and up to 24 months of payment history. Your account balance will update no more than once every 24 hours and usually overnight. It’s completely free; all you need to do is register to access your account.
However, there are two catches to using this tool.
The first is that you can only access it during certain times.
- Monday 6:00 a.m. to Saturday 9:00 p.m. ET
- Sunday from 10:00 a.m. to midnight ET
The tool occasionally goes offline during additional hours to allow for maintenance.
The second catch is that you must provide specific information to gain access to the tool, including:
- Social security number or Individual Tax Identification Number
- Date of birth
- Filing status
- Mailing address from your last tax return
- An email address
- A mobile phone
- An account number from a financial account, which could be:
- Credit Card
- Student Loan
- Mortgage or Home Equity Loan
- Home Equity Line of Credit
- Auto Loan
This information is meant to verify your identity, but it can be a pain to rustle it all together.
The IRS will also pull a credit report with this information to ensure you are who you say you are. But this is a soft inquiry, so it won’t impact your credit score and lenders won’t be able to see it.
If you decide to register and use the online portal, you can even use it to pay your taxes online. It’ll take one to three weeks for your payments to show up in the Payment History page.
2. Pick up the phone and call the IRS
Not a big fan of using online tools to deal with your federal taxes? Don’t have all the info you need to access the online service? Don’t worry, you’ve got other options.
Your first option is to give the IRS a call. You may have to deal with a wait time, which averages about 27 minutes during post-filing season. But once you’re connected, a representative from the IRS should be able to tell you how much you owe.
Our suggestion: Call as early in the day as possible to prevent longer hold times.
If you’re an individual taxpayer looking into your balance, you can call the IRS at 1-800-829-1040 between 7:00 a.m. and 7 p.m. local time.
Representing a business? Call the IRS at 1-800-829-4933 instead between 7:00 a.m. to 7:00 p.m. local time.
3. Fill out a form and drop it in the mail
Another option outside of the online portal is to contact the IRS by sending a form through snail mail.
While this is a viable option for any taxpayer, keep in mind that it will take much longer due to the nature of mail. And if you do owe, penalties and interest will continue to accrue while you wait for a response.
You’ll also want to make sure the IRS has your current address. If they don’t, they’ll send their response (and any other notices) to the most recent address they have on file, which may not be your current one.
Individual taxpayers who filed a Form 1040, 1040A, or 1040EZ can request an Account Transcript. This transcript will only cover a single tax year and might not include any tax penalties, interest, or additional charges.
If you filed another type of form or are representing a business, you’ll need to submit Form 4506-T, Request for Transcript of Tax Return. Once the IRS receives and processes your 4506-T form, they will send you a free transcript.
4. Consult tax debt relief professionals who can figure it out for you
The last option may be the easiest and most hands-free answer to the question, “How much do I owe the IRS?” No need for an online portal, a phone call, or a form in the mail. Instead, you can have someone do that leg work for you.
Tax debt professionals (like CPAs, tax attorneys, and EAs) can work with the IRS on your behalf to find out exactly how much your tax liability is. All you’ll need to do is give them the information they need and kick back while they deal with the IRS for you. And once they find out how much you owe, they can offer you customized solutions.
What to do if you owe the IRS but can’t pay
Once you figure out how much you owe the IRS, your next step is to figure out what to do about it.
If you have money in your bank account to cover your balance, it’s as easy as just paying that payoff amount to the IRS.
But what do you do if you don’t have the money to pay your taxes owed?
The IRS isn’t blind to this problem. They offer solutions for cases like this, which include an installment agreement and Offer in Compromise. Not everyone qualifies for each solution though, so it’s important to find an available option that can offer you some relief.
If you went with the tax debt relief expert route, they’ll be able to walk you through the options available to you and what they would suggest for your unique situation. Our tax pros will even do the heavy lifting to set up a tax resolution that works for you, whether it be a payment plan or an appeal.
If you need back taxes help, reach out for assistance before the tax debt storm comes your way. Liens and garnishment loom on the horizon until you take action to deal with your tax liability. Remember, our tax professionals are only a phone call away.
How Tax Audit Help Could Save You from an IRS Headache
February 26, 2019
It’s happened. You open your mailbox and there it is – the dreaded letter from the IRS stating that they’ve selected your tax return for “examination.” The IRS letter contains detailed instructions, but it doesn’t come with a translator. Before you get too worried about your tax audit fate, take a few deep breaths. We’ve got you covered. Here’s everything you need to know about audits and how tax audit help could help you through this distressing experience.
What does an audit include?
When the IRS audits you, they’re saying that they want to examine your return more closely. They’re looking to ensure all the information you provided is correct. There are three different audit types to look out for:
- Correspondence audits: Audits conducted mainly by mail.
- Office/desk audits: In-person audits at an IRS office.
- Field audits: In-person audits that are either at your home or business.
The majority of IRS audits for fiscal year 2017 were correspondence audits at 70.8 percent of all audits.
What triggers an audit?
Audits are typically triggered when something on your return is abnormal or “off” to the IRS. This can be as simple as making a typo or error, earning more money than you have in previous years, or forgetting to report cryptocurrency. But the cause can also be more complicated, like a self-employment tax issue.
Other audit causes include:
- Failing to report taxable income
- Having three consecutive years of business losses if you’re self-employed
- This isn’t likely for corporations, but it’s still possible.
- Using round numbers on your return
- Deducting 100 percent of a business car
The most interesting audit cause? The IRS selects a very small amount of returns for audit at random as part of the National Research Program they conduct. That’s why most tax preparers cannot offer you an entirely “audit-free” return. Even with a completely clean return, there’s always a possibility that you could face an audit.
What can come from an audit?
There are three ways to conclude an audit:
- Accepted – the IRS proposes changes that you understand and accept.
- Disagreed – the IRS proposes changes that you understand but don’t agree with completely.
- No change – no changes come from your audit.
Sometimes the changes that the IRS proposes will include an increase in your tax bill. However, it’s not always the case that you’ll owe money after an audit brings about changes. In almost 34,000 instances out of the total 1.1 million tax returns audited in 2016, taxpayers received additional refunds totaling more than $60 billion.
No matter what conclusion comes from your audit, the biggest key is to watch out for deadlines. The IRS gives you a specific amount of time to respond and if you don’t respond, they will still post the changes.
Why turn to professional tax audit help?
There’s nothing that says you can’t take on an audit on your own, especially if it’s a correspondence audit. With these types of audits, you can usually complete them by sending the IRS whatever they’ve asked for. But if they aren’t satisfied with what you’ve sent or if you don’t have what they want, it could benefit you to seek out professional tax audit help.
You have certain taxpayer rights, which extend to the right to retain representation. This means that you have the right to have an authorized representative of your choosing to represent you with the IRS. Dealing with the IRS is far from your favorite activity. Luckily, tax audit reps like ours have experience in dealing with the IRS. Experienced pros know the right questions to ask. They can even translate confusing IRS terminology into phrases normal people can understand. With tax audit help and representation, you will rarely have to talk to the IRS. We’ll handle all the legwork for you and spare you the droning IRS on-hold music.
Is tax audit help expensive?
You may think you’re saving money by skimping on tax audit representation. But it can be even more financially damaging to receive a hefty IRS bill for tax deficiencies and penalties you may not fully understand. A representative who is well versed in tax code should be able to keep you from paying more than is necessary.
So give us a call today. You’ll have a free consultation with one of our experienced tax audit pros to get to the root of your audit issue. We’re always transparent about what to expect when it comes to our process and pricing.
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 Truth About the IRS’s Private Debt Collection Agencies
July 19, 2018
The IRS has called for backup from the private sector. What does this backup look like? Four private companies that could be coming after your tax debt in lieu of the IRS. Here’s what you need to know about private debt collection agencies (PDCs) to stay informed, lawful and safe.
What’s the deal with Private Debt Collection Agencies (PDCs)?
PDCs aren’t rookies to the federal tax debt collection game – they assisted the IRS in both 1996-1997 and 2006-2009. Despite warnings from the IRS and National Tax Advocate on the unsuccessfulness of these previous efforts – wasting money, yielding half the amount of collections, and contributing to inequities in the U.S. tax collection system – it seems that history is repeating itself.
Congress passed Fixing America’s Surface Transportation Act (FAST Act) in December 2015. The FAST Act includes a section requiring the IRS to use PDCs for outstanding tax debt that the IRS is no longer pursuing. Now, the program is in full swing. The IRS has hired four PDCs: Conserve, Pioneer, Performant Recovery, and CBE Group. Not all tax debt cases are eligible for PDCs to handle (e.g. offer-in-compromise, innocent spouse cases, deceased). However, you may be getting a notice that your account will be in new (private) hands.
What are the risks associated with PDCs?
The problems don’t necessarily lie with the PDCs themselves, but the program’s loopholes. Here are some of the dangers associated with private debt collection:
- Scam magnets. More scam artists can pretend to be PDCs, especially because PDCs aren’t required to identify themselves as IRS contractors. Here’s a smart rule of thumb: Do not disclose any personal information to someone randomly demanding payment over the phone or internet.
- Elevated risk for low-income taxpayers. PDCs have an agenda to push people to make payments, even if the taxpayers can’t afford it. This can create economic hardship for people who would otherwise qualify for alternative payment plans by the IRS. National Taxpayer Advocate reports half of taxpayers outsourced have incomes of less than 250 percent of the federal poverty level (FPL) and nearly a quarter are at less than 100 percent of the FPL. The result is low-income, elderly, and income-restricted individuals are buried deeper in economic woes and unpayable debt.
- A lack of consumer awareness. The IRS wants consumers to know what’s up, but public awareness campaigns are minimal at best due to drastic IRS funding cuts. As a result, consumers are left in the dark and even more vulnerable to scams.
What you need to know to protect yourself:
- How the IRS works – The IRS isn’t like your crazy ex. The agency will never call or text you out of the blue to demand payment. Instead, they will send you notices in the mail that progressively increase in urgency to act. If they have assigned your case to a PDC, the IRS will let you know so it won’t surprise you.
- Don’t pay the PDC directly – Though the IRS hired the PDC to collect your debt, you’re not actually writing out your check to the PDC. All your repaid debt will go straight to the IRS as usual.
- Consult with a licensed tax professional – Turning to a licensed tax professional, which may include CPAs, enrolled agents or tax attorneys, can give you the support and direction you need regarding your tax debt. These experts can negotiate with the IRS on your behalf to relieve tax debt or tie-ups like liens, levies and wage garnishments.
While the lawfulness of PDC use is under scrutiny, it is today’s reality. The key to avoiding trouble is being smart about tackling your tax debt and not going at it alone.
Remember: It’s crucial that you never disclose information to someone calling or messaging to collect immediate payment. Instead, call the IRS directly to see if you owe taxes.
IRS Letter 5071C: Preventing Identity Loss One Verification at a Time
March 24, 2018
What if someone tries to submit a tax return in your name? Identity thieves often steal personal information from taxpayers in order to file fraudulent tax returns and pocket their refunds. But wait! Does the IRS do anything to keep these identity thieves from making off with your hard-earned refund? You can rest assured that the IRS has processes in place for identity theft. They use their handy Letter 5071C to obtain information from taxpayers to verify their identities. This additional information is meant to help the IRS prevent fraudulent tax returns from sneaking through their system.
What does Letter 5071C say?
Letter 5071C informs you that the IRS has received a tax return with your name and/or social security number. It also lets you know that they need to verify the identity of the recipient of the notice.
How do I respond to Letter 5071C?
You have two options to respond:
- You can verify your identity using the IRS Identity Verification Service
- Alternatively, you can call the IRS on the toll-free Identity Verification number in the upper corner of your letter
When using either of these two contact methods, you should have a copy of your last filed tax return and your current year’s tax return, along with other documents that verify your identity. Until your identity is verified, the IRS will not complete the processing of your return.
If you filed the return and there was no identity theft, the IRS should process the return in approximately six weeks. If you did not file the return, then you must contact the IRS immediately using either of the two methods shared above.
Will the IRS contact me outside of Letter 5071C to verify my identity?
The IRS will not ask you to confirm your identity via email or phone. Fraudsters use a number of tactics to deceive taxpayers, including sending out fake emails, letters or making phone calls. You should only respond to Letter 5017C to verify your identity and only use the two methods given above to provide information to the IRS.
Tools like our TaxSafe™ plan can also help ensure that your identity is protected no matter what.
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.