2016 Tax Season Opens Smoothly

2016 Tax Season Opens Smoothly

The IRS officially kicked off tax season this year on January 19th, one day after the Martin Luther King holiday. This marked the first day that the IRS would accept, and begin processing, 2015 federal income tax returns. The IRS said in an official statement that they had received several hundred thousand tax returns up through mid-day and that the 2016 tax season was off to a smooth start.

I don’t know how efficiently they will be processing returns this year (they say that most returns will be processed in 21 days or less), but I can personally vouch for the smoothness of the phone lines, at least on the first day of tax season. I made a few calls on the 19th, and got through surprisingly quickly on the Practitioner Priority Line (PPL), with a similar result when calling the Automated Collections System (ACS) for some of my collections cases. January has often been a terrible time to call the IRS (especially the first half of the month) because people have been away from their offices for the holidays and when they come back it seems like everybody wants to catch up on work at the same time. It is especially bad the day after a federal holiday, so I was surprised how prepared the IRS was on day one of tax season right after MLK.

The IRS expects more than 150 million individual tax returns this year. It may go without saying, but that figure does not include business returns, and it does not include any prior-year tax returns or amended returns that the IRS receives this tax season. The IRS also anticipates that around 80 percent of all returns will be filed electronically. It is always astounding to me that this figure is not up around 99 percent yet. I just can’t imagine filing a paper tax return and don’t understand why people still do it. I suppose the hold-outs are those who like the idea of saving a few bucks (when you paper file, all you pay is the cost of postage) and those who basically want to stick it to the man. This quote I found says it all:

Why should I pay through the nose to save the government money? What rational individual wants to pay $10 or more to save the government $4?

So the IRS received hundreds of thousands of returns within the first few hours of tax season, day one. I guess that means a couple hundred thousand more will be arriving tomorrow or Friday in the post. Queue the letter openers.

Tax Day 2015 Has Arrived!

Free food is great and all, but is that really what you want on Tax Day?  I suppose if you’ve already filed and you’re just waiting for a refund check, then you may have an appetite for a free Hard Rock Cafe burger, a Schlotzksky’s sandwich, or red velvet cake at Tony Roma’s.  But if you’re like many other taxpayers, you have had to work for every dime you earn and you maybe haven’t had time to get your taxes done yet.  Of course, it is also difficult to be motivated to file when you know you’re going to owe.  It you fit this description, then maybe you’re looking for a more valuable bit of Tax Day info, like how to file an extension.

Keep in mind that the automatic extension is “automatic” because it is granted to anyone who asks without the need to show reasonable cause, not because it happens automatically.  You have to so something.  You have to ask for it**.  The IRS website is extremely sluggish right now due to all the extra traffic it gets this time of year, but requesting an extension online using Form 4868 is still the fastest and most convenient way to do it.

You can file it with your electronic payment, through your tax filing software, or through your tax professional.  You’ll need your name, address, and social security number.  You will also be asked to estimate your 2014 tax liability, provide the amount you have paid towards that liability (if any), the amount you are sending in with the form (if any), and lastly, the total remaining liability.

So, what do you get when you file an extension?  How is six extra months?  Congratulations, you may take a deep breath and relax a little because you don’t have to file until October 15th now.  But, there is one big “BUT” associated with filing an automatic extension: an extension to file does not also give you an extension to pay.  If you don’t pay on time then you’ll be charged interest and late payment penalties.

**You don’t even have to request an extension if you are a US citizen living abroad, or if you are serving in the military outside the US.

Tax Deadline Tomorrow! Are You Prepared?

There’s a tax deadline tomorrow causing many people to work on their taxes into the wee hours tonight. Even though the federal government is closed, the second tax day is tomorrow, October 15, 2013. This second tax day is the deadline to file your personal federal tax return with the Internal Revenue Service (IRS) if you filed an extension to file your taxes by April 15, 2013, the first tax day.

On September 26, 2013, the IRS announced that “many of the more than 12 million taxpayers who requested an automatic six-month extension this year have yet to file.” These are likely the people that are going to be up late tonight enjoying tax returns instead of playoff baseball and Monday night football. Individuals and their tax preparers alike are guilty of procrastinating until this upcoming second tax day to prepare and file their tax returns.

Many people file a tax extension in April once they prepare their tax return and determine that they’re going to owe a tax liability. Others just need additional time to review their finances and prepare their tax returns. In either case, filing a timely tax extension in April only allows taxpayers extra time to get their tax returns filed. However, an extension to file does not extend the time that taxpayers have to pay any tax due on their tax return. This is often overlooked or simply ignored by taxpayers when requesting a tax filing extension.

If you filed an extension to file but owe a balance due, you will owe interest on any amount not paid by the April 15 tax filing deadline, plus you may owe penalties. The late payment penalty is generally ½ of 1% of any tax not paid by the original filing deadline of April 15, 2013. It is charged when reasonable cause for non-payment is not established, for each month or part of a month the tax is unpaid maxing out at 25%. Fear of not being able to pay the tax due often causes individuals to not file their tax returns, even if they have an extension to file. They’re often delaying the inevitable.

The IRS promotes payment plans to the public to entice the public to file their tax returns even if they cannot immediately pay the entire tax liability. Beware however, as the IRS is a collection machine, their job is to collect the debt owed; assuming of course that they return to work.

There are different types of payments plans allowed by law that may better fit your budget than the IRS may share with you, unless you know the rules. The IRS has a hardship program called currently non collectible status for taxpayers that are unable to pay the tax debt owed. Additionally, the IRS has a debt settlement program for tax payers that can prove that it is in the government’s best interest to collect less money than what is owed, this is called an offer in compromise. The point is that there are options available for taxpayers that cannot pay their taxes owed. The first step is to file your tax return, preferably before tomorrow’s second tax day deadline.

Boston Marathon Tax Relief

Did you file your tax return yesterday? If not, did you file an extension to file? While your typical tax extension is only an extension to file your actual tax return, but not an extension to pay the tax owed, the Internal Revenue Service announced a three-month tax filing and payment extension to Boston area taxpayers and others affected by Monday’s Boston Marathon explosions.

Smartly, the IRS is allowing geographic and disaster related tax relief. This tax relief applies to all individual taxpayers who live in Suffolk County, Massachusetts. Since the marathon was both a national and international event, the tax relief also applies to victims, families, first responders, others impacted by Monday’s Boston Marathon tragedy who live outside of Suffolk County and other taxpayers whose tax preparers were adversely affected by the tragic events.

“Our hearts go out to the people affected by this tragic event,” said IRS Acting Commissioner Steven T. Miller. “We want victims and others affected by this terrible tragedy to have the time they need to finish their individual tax returns.”

Under this specific tax relief program, the IRS will allow eligible taxpayers until July 15, 2013, to file their 2012 returns and pay any taxes normally due April 15. Normally, non-filing and non-payment IRS penalties are severe and crushing. Under this tax relief program, no filing and payment penalties will be due as long as the tax returns are filed and the payments are made by July 15, 2013. By law, interest, currently at the annual rate of 3 percent compounded daily, will still apply to any payments made after the April deadline.

Unlike other IRS tax relief programs, generally, no specific action is necessary for this program. The IRS will automatically provide this extension to anyone living in Suffolk County. However, action is needed for impacted and qualified taxpayers who reside outside of Suffolk County. Eligible taxpayers living outside Suffolk County can claim this relief by calling 1-866-562-5227 beginning Tuesday, April 23, and identifying themselves to the IRS before filing their tax return or making their tax payment. Eligible taxpayers who receive penalty notices from the IRS can also call this number to have these penalties abated.

Tax Day is Around the Corner; Are You Prepared?

Happy Tax Day! Come Monday April 15, 2013, your tax returns are due. Have you prepared? While many people filed their tax returns well before the April 15 deadline because they gave the government an interest free loan and are due a refund; many other people delay filing their tax return or never file a tax return. These people dread Tax Day because they know that they’re going to owe a tax debt once they actually do file their tax return. So they believe it’s better to not even file. This is not the correct approach.

If you are in the group of people who procrastinate filing their return or do not file your tax returns in fear of a tax debt, given the present Internal Revenue Service (IRS) collection regulations, this needs to be the year you fix your tax problem. If you have a filing requirement, you need to either file a tax return or an extension to file by April 15. Simply ignoring your filing requirement will likely cost you more money in the long-run as failure to file monetary penalties are severe.

Eventually, the IRS is likely to catch up with your shenanigans. If you had sufficient income requiring you to file a tax return, such income was likely reported to the IRS. Once your income is reported, even if you don’t file a tax return, the IRS may eventually file a return on your behalf by using the reported income and minimum deductions to assess a liability against you.  Even if your income isn’t reported, taxing entities have been known to use other means to estimate your income to assess a liability against you.

You’re legally allowed to file an extension to file, so use it if you’re not ready to file your tax return. This is a simple procedure. Many taxpayers fail to file a timely tax return. Or, alternatively, they elect to pay undue taxes by claiming the standard deduction simply for the purpose of meeting the tax day deadline because they don’t think they have the time to itemize and calculate the deductions and credits they are entitled to claim. While an extension to file is not an extension to pay, filing an extension and properly preparing your tax return will likely save you money.  You must file your extension by April 15. If needed, filing an extension will generally allow you until October 15, 2013, to properly prepare your tax return.

So you filed your tax return or you are about to file your tax return, and you owe a non-disputed tax debt… what do you do now? Can you pay the debt? If you can afford to pay the debt owed, paying the debt is usually the least costly option after penalties and interest are factored into the equation. But if you’re like most people who end up owing a tax debt, you likely were not expecting to owe a tax debt and it’s simply another debt you cannot afford to pay.

If this is the case, there is one thing to keep in mind: the IRS is not your friend when you owe a tax debt, they are like any other creditor, they need as much money from you as they can get, as quickly as they can get it. Even with the public relations blitz over the past couple years of a kinder, gentler IRS, keep this in mind as your financial situation needs to control the final resolution of the tax debt. Too often I hear from people owing tax debts who agreed to some outrageous payment plan because the IRS required such payment based on their liability owed and disregarded their actual financial situation.

Therefore, it’s important to know your financial limitations. If you truly cannot pay your tax debt, there are options available to you. However, you need to have an organized and systemic presentation of your circumstances to get the appropriate resolution to your tax headache. While the IRS will likely pressure you to pay your debt in full within 90 – 120 days or make payments including penalties and interest over the next five to six years, there are other options available which include petitioning for non-payment of the debt, to settling the debt for less than the amount owed. The point is that there are options available to you and the key is to file your return, and then address the debt within your financial limits, do not ignore it. And, if you need professional assistance, call the tax relief attorneys at Montgomery & Wetenkamp toll free at (800) 454-7043 for your free consultation. We can help you resolve your tax debt.

Just Over One Month to Go In Tax Season and You Can Finally File Your Tax Return

Over the weekend, the Internal Revenue Service (IRS) finally completed reprogramming and testing its systems for tax-year 2012. This includes the lingering updates mandated by the American Taxpayer Relief Act (ATRA) enacted by Congress back in January. This final update finally allows all taxpayers to prepare their tax returns. The final updates apply to taxpayers claiming residential energy credits on IRS Form 5695 and taxpayers claiming various business tax credits and deductions on their federal tax returns.

The IRS began accepting tax year 2012 returns in phases as it worked over the past several months to update various forms and make adjustments to processing systems to apply the current tax laws. Finally, with just six weeks to go before this year’s April 15, 2013 deadline, all IRS tax returns can now be filed. And, if you quickly find out that you’re in tax trouble, now that you can actually file your tax return, the tax relief attorneys at Montgomery & Wetenkamp will be able to resolve your IRS tax debt problems, call us toll free at (800) 454-7043.

Is This The Year You Should Itemize Your Deductions on Your IRS Tax Return

It’s now February, and tax day is just around the corner … but far enough away to allow you time to explore your options and minimize your tax exposure. While preparing your tax return the goal is always to legally minimize your tax debt and hopefully increase your tax refund. At its simplest, your tax debt is determined by your taxable income after deductible expenses.

Focusing on the deductible expenses side of the tax equation, according to the Internal Revenue Service (IRS), most taxpayers claim the standard deduction. Is this the year that you should itemize your deductions? My most common response to legal questions is apt; it depends. The analysis requires a determination of which is greater, the standard deduction or itemized allowable deductions?

What is the Standard Deduction?

The standard deduction is a preset amount that reduces the amount of income on which you are taxed. The standard deduction amount depends on your filing status, whether you are 65 or older, or blind, and whether an exemption can be claimed for you by another taxpayer. The standard deduction is generally adjusted annually based on inflation.

The standard deduction amounts for tax year 2012 are $5,950 for single filers and married couples filing separately, $8,700 for head of household filers, and $11,900 for married couples filing jointly and qualifying widow(er). If you are 65 or older, or legally blind you may receive an increased deduction per qualifying status. The additional standard deduction amounts for tax year 2012 are $1,450 for taxpayers who file single or head of household, and $1,150 for those filing married filing jointly, married filing separately, or qualifying widow(er).

Should You Itemize Your Deductions?

Now the hard part: is the standard deduction amount greater than the amount that may be claimed if you were to itemize your allowed expenses? If the standard deduction is greater, use the standard deduction. Determining what expenses you had throughout the year that may be itemized and deducted, is usually difficult because you need to maintain accurate records and the list of the various allowed deductions are exhaustive and riddled with exceptions, exemptions and limitations. Once you have a grasp of the type of deductions that may be claimed, you may find that your actual expenses, when itemized, far exceed the standard deduction provided by the government. This is why it truly pays to prepare your tax return early and not procrastinate so you have time to accurately determine the expenses you may itemize.

The types of expenses that may be itemized are typically a social economic incentivizing type of expenses. Generally, and subject to many exceptions and limitations, expenses paid for or associated with medical care, mortgage interest, student loan interest, taxes, education, charity, job search, relocation, earning income, and investments, may at times be itemized and could potentially reduce your taxes. Once tallied and accounted for, if the total amount spent on the qualified deductions, subject to the applicable exceptions and limitations, are more than your standard deduction, this may be the tax year you save on your taxes by itemizing your deductions; so don’t procrastinate and do your homework … or file an extension.

Bullet Point Friday

I definitely don’t want to be responsible for pulling anyone away from their taxes this weekend with a riveting and lengthy blog post.  So this one will be short and non-riveting.  The long-winded tax attorney is just gonna use bullet points today:

  • Obama released his 2011 tax return.  He paid $162,074 on income of $789,674 (20.5 percent rate).  When Romney was asked to disclose his return too, he responded by saying he’s filing for an extension.  See full story here.
  • If you’re interested in free Tax Day noshing at Panda Express, Chevy’s, P.F. Chang’s, etc., you may benefit from a perusal of this story.
  • The Giants shut out the Pirates 5-0 today in their first home game of the season.  Matt Cain threw a one-hit complete game.
  • Axl Rose declined Rock and Roll Hall of Fame induction like a little baby.  Part of his letter reads like his lawyer wrote it for him:
I strongly request that I not be inducted in absentia and please know that no one is authorized nor may anyone be permitted to accept any induction for me or speak on my behalf. Neither former members, label representatives nor the Rock And Roll Hall Of Fame should imply whether directly, indirectly or by omission that I am included in any purported induction of “Guns N’ Roses.”

Roads More Dangerous on Tax Day

Tax debt is a major source of stress for some people.  But who knew tax time could cause such distress and turmoil on our nation’s roadways?

A study published in the Journal of the American Medical Association shows that fatal motor vehicle accidents spike right around the middle of April each year.  The sharp increase in fatalities is believed to be associated with the stress of Tax Day.  The lead researcher, Donald Redelmeier, identified the following contributing factors:

  • stress
  • lack of sleep
  • alcohol use
  • less tolerance to other drivers

Wait, aren’t these the conditions we drive in every day?

The researchers studied data from the IRS and the National Highway Traffic Safety Administration between the years 1980 -2009.  Of the 30 tax days during that time span, there were a total of 226 fatal crashes.  In comparison, there were only 213 fatal crashes during the 60 control days.  Even though most people now file their taxes from their computer and don’t have to get in their car and drive down to the post office, fatalities have held steady over the years.