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.
What to Do If You Didn’t Get Your W-2
February 22, 2019
Receiving your W-2 in the mail can be a heads-up for many people that tax season is in full swing. Because you need your W-2 in order to file your taxes every year, it’s a great nudge to get you started on your tax prep checklist. At the end of each tax year, your employer is required to issue your Form W-2, Wage and Tax Statement, which details how much you made and how much income, social security, and Medicare tax were withheld from your pay. By now, your employer should have issued you your W-2, as the deadline for issuing forms to employees was Jan. 31. But what if you didn’t get your W-2?
If you didn’t get your W-2, take the following steps to ensure you receive it in time to file your taxes.
1. Contact your employer.
If you haven’t already, reach out to your employer or former employer and ask them to send your W-2. This should be the fastest way to get your W-2 form. Verify your contact information with them as well to make sure they sent your W-2 to the correct address.
Did your former employer go out of business or move since your employment with them? Still make an effort to reach out. Google is definitely your friend in this situation. Search for your employer online to see if you can find any breadcrumbs to follow and track them down. You can also attempt to send them a note via mail to their previous address, as there may be a forwarding notice with the post office.
2. Call the IRS hotline.
Still no W-2? Then, call the IRS hotline at 800-829-1040. Make sure you are ready to give the following information:
- Your name, SSN, address and phone number.
- Employer’s name, address and phone number.
- Employment dates.
- An estimation of your wages and federal income tax withheld. You can base this off of your last pay stub.
The IRS will contact your employer for you after this call. They’ll send them a Form 4598, Form W-2, 1098 or 1099 Not Received, Incorrect, or Lost. You should receive a copy of the Form 4598 as well, along with a Form 4852, Substitute for Form W–2.
3. Use Form 4852 in place of your W-2.
If your employer still has not issued a W-2 by April 15, file your taxes using Form 4852 in place of your W-2. It is important not to file Form 4852 too early because you could be charged penalties for “improper use.”
Always be sure to file your taxes on time, even if you use Form 4852. If you do not think you will be able to make the April 15 deadline, file for an extension using Form 4868, Application for Automatic Extension of Time to File on or before April 18. Filing late can cause you to incur some serious tax penalties.
4. If you get your W-2 after you’ve filed, amend ASAP.
Picture this: you didn’t get your W-2 in time so you went ahead and filed your taxes with Form 4852. The next day, you open your mailbox to find your missing W-2. Cue the eye rolling.
If you get your W-2 form after you’ve filed your return and the information is different from what you reported, you’ll need to amend your return. Luckily, amending isn’t too difficult. You’ll just need to file Form 1040X, Amended Individual Income Tax Return.
If you find yourself confused at any stage of filing this tax season, check out what our seasoned team of tax experts can do for you!
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.
Your Questions About the 20% Pass-Through Deduction Answered
January 25, 2019
If you’re a business owner, you’ve probably heard the buzz about the 20% pass-through deduction, also known as the qualified business income (QBI) deduction. Everyone discussing this deduction has proclaimed it to be a great perk for business owners. Still, it’s been hard to figure out how to claim it.
The IRS released some guidance on the QBI deduction on Jan. 19, 2019 in the form of 274 pages of final regulations. Sounds like it should have cleared things up, right? Actually, it only clarified that this is one of the most complicated changes that came with the recent tax reform. Let’s shed light on the basics of this intricate deduction by responding to some questions we’ve heard a lot since it was signed into law.
Answers to those burning questions about the 20% pass-through deduction:
What is the QBI deduction?
The QBI or 20% pass-through deduction refers to an individual provision (officially named Section 199A) in the Tax Cuts and Jobs Act. The provision is only effective for tax years after Dec. 31, 2017, and before Jan. 1, 2026.
Section 199A allows owners of pass-through entities to deduct 20 percent of the business income that is passed onto their individual return.
Why was it included in the tax reform?
The pass-through deduction was included to offer a tax benefit to businesses that help grow the U.S. economy. This tax break, however, is meant for a specific subset of business owners.
Who is eligible for the 20% pass-through deduction?
Pass-through organizations are eligible for the deduction. These organizations tend to “pass” the business’s profits “through” to owners or shareholders. The owners of pass-through organizations pay tax through individual rather than corporate returns. It’s estimated that about 95% of businesses fall into this category.
These are all pass-through organizations that could be eligible for the deduction:
- Sole proprietorships
- Limited liability companies
- S corporations
But there is a catch. Even if your business is a pass-through organization, it doesn’t mean you’ll qualify for the 20% pass-through deduction. There are some key limitations to this deduction that we’ll discuss in a moment.
What is a specified service trade or business (SSTB) and how does it apply to the deduction?
A specified service trade or business (SSTB) is defined in the legislative text of IRC Section 199A as:
“Any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees [or] any trade or business which involves the performance of service that consist of investing and investment management, trading, or dealing in securities.”
Any business that fits that definition only qualifies for the deduction if the owner’s taxable income is less than certain threshold amounts. Here’s a handy visual breakdown of the trades and business fields that fall into the category of SSTBs:
How do I calculate how much I could save with the 20% pass-through deduction?
Unfortunately, it’s not as simple as just multiplying your pass-through income by 20 percent. Even most tax professionals have to run complicated calculations through advanced tax programs. The best way to really find out how much you can save is to find a tax professional who is experienced in running these calculations.
Can I split my company into different entities to lower my tax bill?
No. Originally, some tax professionals believed that they could split firms into different entities to avoid limits on the new tax break (also known as “crack and pack”). However, the IRS swiftly blocked this tactical move.
What is the best business structure for me and will it qualify me for the 20% pass-through deduction?
This is a near-impossible question to answer without knowing the specifics of your business and income. The pass-through deduction will inevitably help some business owners. Meanwhile, others may benefit more by maintaining a C-corporation structure.
Your best bet is to find a qualified tax professional who can evaluate your business and then give you personalized guidance on business structure and the best tax breaks available to you.
If I do qualify for the QBI deduction, what are the limitations?
Here are the main limitations of the 20% pass-through deduction:
- The deduction cannot exceed 20 percent of your taxable income in excess of capital gains.
- You cannot deduct more than the lesser of QBI or the greater of:
- 50 percent of your allocable share of the wages paid by the business with respect to QBI, or
- 25 percent of your allocable share of wages plus 2.5 percent of the unadjusted basis of qualified property owned by the business.
- This limitation begins getting phased in at taxable incomes of $157,500 for single taxpayers and $315,000 for married taxpayers filing jointly.
- As mentioned before, the deduction is temporary and may not exist past 2026.
- The complicated nature of the 20% pass-through deduction makes it difficult to navigate for the average taxpayer.
If I don’t qualify for the deduction, are there other ways I can save on my taxes?
Don’t worry. The QBI deduction is not the only way to save on your business taxes. The tax reform also brought along a lower tax rate for C-corporations and repealed the corporate alternative minimum tax.
In sum, the 20% pass-through deduction could bring you a great tax break. But it’s also a complex and headache-inducing change. The good news is that there are tax experts like ours ready to help you decipher what Section 199A means for you and your business taxes.
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.
Will the Ominous New Tax Bill Make You Owe the IRS Next Year?
September 14, 2018
With the biggest tax changes in over 30 years, the Tax Cuts and Jobs Act of 2017 (TCJA) brings a terrifying prospect for millions of Americas. The Government Accountability Office (GAO) recently issued a report warning that this new tax bill will make millions of taxpayers owe on their 2018 tax returns. Many of these taxpayers have never owed before, so it’s bound to be an unpleasant surprise.
Under the TCJA, many taxpayers will either under-withhold on their paychecks or underpay on their estimated tax payments. Across the country, CPAs are working hard to make sure that their clients will not owe on their tax returns next year. But the truth is, most employees currently lack correct withholding or have assumed that the W-4 they filed 5 years ago is still correct.
So, if you haven’t updated your W4 or reviewed your withholding, you may have an unwanted tax surprise coming in the new year.
What has the new tax bill changed?
The new tax bill has changed quite a bit since going into effect on Jan. 1, 2018. It has:
- Increased the standard deduction
- Removed personal exemptions
- Increased the child tax credit
- Limited or discontinued certain deductions
- Changed the tax rates and brackets
- Introduced a new 20 percent deduction for qualified business income
- Reduced the corporate tax rate from 35 to 21 percent
- Increased the interest rate on underpayment of taxes from 3 to 5 percent
And with all these changes, you need to know where you stand before it’s too late to make changes.
Who will be most affected by these changes?
If you fall into one or more of the following categories, you’ll want to make sure you get a paycheck checkup:
- Are a two-income family
- Work two or more jobs at the same time
- Only work for part of the year
- Have children and claim credits such as child tax credit
- Have older dependents, including children who are 17 or older
- Have changed personal circumstances (e.g., got married, moved, etc.)
- Itemized deductions on your 2017 return
- Received large tax refunds or had large tax bills for 2017
- Earn high incomes and have a complex tax return
If any of these categories above apply to you, you’ll want to take immediate action to ensure you’re not negatively affected by the new tax bill.
And if you own a business, you’ll want to have an expert review your business structure to ensure you are enjoying the new positive, business-specific changes from the tax reform.
What can I do to make sure I don’t owe?
Don’t wait! You’ll want to make sure you get a paycheck checkup, especially if you fall into any of the categories above. You still have time to adjust your withholdings or increase your estimated tax payments to make sure you’re covered in 2019.
The longer you wait to make these adjustments, the more likely it is that you’ll owe next year. If you owe this year, you may owe even more than you ever have before, especially with the increased interest rate on underpayment of taxes. So, contact a tax professional today to avoid any unpleasant surprises from the new tax bill come filing time.
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.
Will My Spouse’s Tax Debt Affect Me?
August 18, 2018
Marriage is a lot of work. Once you say your “I Dos,” you start to realize just how much more you have to learn about your spouse. Sometimes getting to know your spouse better can be great. Maybe you discover they are an amazing pastry chef or can handle stressful situations with astonishing grace! But other times, getting to know your spouse better can be a little bit more alarming. For instance, what if you discover they have extensive tax debt with the IRS? Even if you are the picture of taxpayer perfection, your spouse’s tax debt and previous history with the IRS can affect you. No matter how much you love your spouse, it’s important to know how their tax debt can impact you.
Can my spouse’s tax debt affect me?
Did you file your return jointly with your spouse? If so, and if your spouse owes back taxes or other federal debts, it can affect your refund. The interested agency can try to recover the debt using your tax refund if they are unable to do so using your spouse’s.
How do I protect my refund?
Why should you lose out on your refund because of your spouse’s mistakes? If you do not want your refund to be taken away to satisfy your spouse’s tax debt, you can file for Injured or Innocent Spouse Tax Relief. This is an IRS relief program that releases spouses from the responsibility to pay a debt entirely owed by their spouse. You can file for Injured Spouse Allocation by completing Form 8379.
How do I retrieve my refund?
Even if your refund has been taken due to your spouse’s tax debt, you may be able to retrieve it by filing for Injured or Innocent Spouse Relief. The following must be accurate to recover your refund:
- You filed a joint tax return with your spouse.
- The return had a refund due, all or a part of which was applied to satisfy your spouse’s debt.
- You reported income (from any source) on the tax return.
- Your spouse owes the entire debt.
- You made estimated tax payments or had your income withheld for paying taxes, and/or you claimed the Earned Income Tax Credit (EITC) or other refundable tax credits on the joint return you filed with your spouse.
You can file Form 8379, Injured Spouse Allocation with your tax return. If you are filing for Injured Spouse relief with your return, it may delay your refund as a result; the IRS will need time to review your return and process your request for relief. It might take up to 14 weeks for your refund to reach you.
If you have already filed your return, you may then file the form separately. The IRS takes around eight weeks to process Form 8379.
If you don’t qualify for Innocent Spouse Relief and are held liable for the due balance, contact one of our experienced tax consultants. We are well-equipped to find an alternative solution for you to resolve your tax issues.
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.
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.