IRS TAX PROBLEMS – Filing an Amended Return

IRS TAX PROBLEMS – Filing an Amended Return

If you need to file an amended return.

  1. Tax form to amend your return.  Use IRS Form 1040X, Amended U.S. Individual Income Tax Return, to correct your tax return. You must file a paper Form 1040X; it can’t be e-filed.
  2. Amend to correct errors.  You should file an amended tax return to correct errors or make changes to your original tax return. For example, you should amend to change your filing status, or to correct your income, deductions or credits.
  3. Don’t amend for math errors, missing forms.  You normally don’t need to file an amended return to correct math errors. The IRS will automatically correct those for you. Also, do not file an amended return if you forgot to attach tax forms, such as a Form W-2 or a schedule. The IRS will mail you a request for them in most cases.
  4. Most taxpayers don’t need to amend to correct Form 1095-A, Health Insurance Marketplace Statement, errors.  Eligible taxpayers who filed a 2014 tax return and claimed a premium tax credit using incorrect information from either the federally-facilitated or a state-based Health Insurance Marketplace, generally do not have to file an amended return, regardless of the nature of the error, even if additional taxes would be owed. The IRS may contact you to ask for a copy of your corrected Form 1095-A to verify the information.
  5. Time limit to claim a refund.  You usually have three (3) years from the date you filed your original tax return to file IRS Form 1040X to claim a refund. You can file it within two (2) years from the date you paid the tax, if that date is later. That means the last day for most people to file a 2011 claim for a refund is April 15, 2015. See the Form 1040 Instructions for special rules that apply to some claims.
  6. Separate forms for each year.  If you are amending more than one tax return, prepare a 1040X for each year. You should mail each year in separate envelopes. Note the tax year of the return you are amending at the top of IRS Form 1040X. Check the form’s instructions for where to mail your return.
  7. Attach other forms with changes.  If you use other IRS forms or schedules to make changes, make sure to attach them to your IRS Form 1040X.
  8. When to file for second refund.  If you are due a refund from your original return, wait to get that refund before filing IRS Form 1040X to claim an additional refund. Amended returns take up to sixteen (16) weeks to process. You may spend your original refund while you wait for any additional refund.
  9. Pay added tax as soon as you can.  If you owe more tax, file your IRS Form 1040X and pay the tax as soon as you can. This will stop added interest and penalties.
  10. Track your amended return.  You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return?” This tool is on IRS.gov or by phone at 866-464-2050. It is available in English and in Spanish. The tool can track the status of an amended return for the current year and up to three years back. To use “Where’s My Amended Return?”, enter your taxpayer identification number, which is usually your Social Security number. You will also enter your date of birth and zip code. If you have filed amended returns for multiple years, you can check each year one at a time.

IRS TAX PROBLEMS – How Does the Taxpayer Advocate Service (TAS) Work?

IRS TAX PROBLEMS – How Does the Taxpayer Advocate Service (TAS) Work?

The “Taxpayer Advocate Service(TAS) is an independent organization within the Internal Revenue Service. The Taxpayer Advocate protects taxpayers’ rights by ensuring that all taxpayers receive fair treatment. The Taxpayer Advocate can also help you to know and understand your rights under the “Taxpayer Bill of Rights”.

What is the Taxpayer Bill of Rights?

The Taxpayer Bill of Rights describes Ten (10) basic rights that all taxpayers have when dealing with the IRS. These are your rights.

What can a Taxpayer Advocate do for you?

A Taxpayer Advocate can help you resolve problems that you can’t resolve with the IRS. And the Taxpayer Advocate Service (TAS) is free. Always try to resolve your problem with the IRS first, but if you can’t, then consider the Taxpayer Advocate Service (TAS).

  • The Taxpayer Advocate Service (TAS) helps individuals, businesses, and exempt organizations if you qualify for TAS help.
  • You may be eligible for TAS help if your IRS problem is causing financial difficulty or you believe an IRS procedure just isn’t working as it should.
  • The Taxpayer Advocate Service (TAS) has offices in every state, the District of Columbia, and Puerto Rico. Your local Taxpayer Advocate’s number is in your local directory and at “taxpayeradvocate.irs.gov”. You can also call us at 1-877-777-4778.

IRS TAX PROBLEMS – What if You Get a Letter from the IRS?

IRS TAX PROBLEMS – What if You Get a Letter from the IRS?

The IRS mails millions of notices and letters to taxpayers each year. There are a variety of reasons why the IRS might send you a notice. Here are some tips to know in case you get one.

  1. Don’t panic. You often can take care of a notice simply by responding to it.
  2. An IRS notice typically will be about your federal tax return or tax account. It will be about a specific issue, such as changes to your account. It may ask you for more information. It could also explain that you owe tax and that you need to pay the amount that is due.
  3. Each notice has specific instructions, so read it carefully. It will tell you what you need to do.
  4. You may get a notice that states the IRS has made a change or correction to your tax return. If you do, review the information and compare it with your original return.
  5. If you agree with the notice, you usually don’t need to reply unless it gives you other instructions or you need to make a payment.
  6. If you do not agree with the notice, it’s important for you to respond. You should write a letter to explain why you disagree. Include any information and documents you want the IRS to consider. Mail your reply with the bottom tear-off portion of the notice. Send it to the address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
  7. You won’t need to call the IRS or visit an IRS office for most notices. If you do have questions, call the phone number in the upper right-hand corner of the notice. Have a copy of your tax return and the notice with you when you call. This will help the IRS answer your questions.
  8. Always keep copies of any notices you receive with your other tax records.
  9. Be alert for “tax scams”. The IRS sends letters and notices by mail. The IRS does not contact people by email or social media to ask for personal or financial information.

IRS TAX PROBLEMS – Late Filing & Late Paying Penalties

IRS TAX PROBLEMS – Late Filing and Late Paying Penalties

April 15 was the tax day deadline for most people. If you are due a refund there is no penalty if you file a late tax return. But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them. Here are eight (8) facts that you should know about these penalties.

  1. Two penalties may apply.  If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.
  2. Penalty for late filing.  The failure-to-file penalty is normally 5 percent (5%) of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent (25%) of your unpaid taxes.
  3. Minimum late filing penalty.  If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.
  4. Penalty for late payment.  The failure-to-pay penalty is generally 0.5 percent (0.5%) per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent (25%) of your unpaid taxes.
  5. Combined penalty per month.  If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent (5%).
  6. File even if you can’t pay.  In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can.
  7. Late payment penalty may not apply.  If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent (90%) of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.
  8. No penalty if reasonable cause.  You will not have to pay a failure-to-file or failure-to-pay penalty if you can show “reasonable cause” for not filing or paying on time.

IRS TAX PROBLEMS – “Hobby” vs. “Business” – Horse Breeding – Requisite Profit Motive

IRS TAX PROBLEMS – “Hobby” vs. “Business” – Horse Breeding – Requisite Profit Motive

 

         Taxpayers can deduct all “ordinary and necessary” expenses paid or incurred in carrying on a trade or business (Internal Revenue Code (“IRC”) Section 162), for the “production or collection of income” (IRC Section 212(1)), or for the “management, conservation, or maintenance of property held for the production of income” (IRC Section 212(2)). But before engaging in the “ordinary and necessary” inquiry, taxpayers must pass the IRC Section 183 test.

         IRC Section 183(a) generally disallows any deduction attributable to an activity “not engaged in for profit,” and is aimed at disallowing the deduction of the expenses of a “hobby” that a taxpayer might try to use to offset taxable income from other sources. IRC Section 183(c) defines an “activity not engaged in for profit” as “any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.”

An activity doesn’t need to show a profit, but taxpayers must have an actual and honest objective of making one. Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), aff’d without published opinion, 702 F.2d 1205 (D.C. Cir. 1983). And this expectation need not even be reasonable (See Section 1.183-2(a), Income Tax Regs.).

How is this determined? The Tax Court looks at all the facts and circumstances with respect to the activity. The Tax Court focuses on the taxpayer’s subjective intent, but they don’t simply take the taxpayer at his word. The Tax Court looks instead to the objective factors that are listed in the regulations. See Metz, TC Memo, 2015-54.

Section 1.183-2(b), Income Tax Regs., lists the Nine (9) factors to consider:

 

  • manner in which the taxpayers carry on the activity;

 

  • expertise of the taxpayers or that of their advisers;

 

  • time and effort expended on the activity;

 

  • expectation that assets used in the activity may appreciate in value;

 

  • success of the taxpayers in carrying on other similar or dissimilar

activities;

 

  • history of income or losses with respect to the activity;

 

  • amount of occasional profits, if any, from the activity;

 

  • financial status of the taxpayers; and

 

  • any elements of personal pleasure or recreation.

 

This list isn’t exclusive, and the Tax Court doesn’t just tally up the factors for and against taxpayers to determine if they win. (See Section 1.183-2(b), Income Tax Regs.). While the Tax Court considers all the facts and circumstances, the Tax Court may give more weight to some than to others.

 

 

What is the “Saver’s Credit”?

What is the “Saver’s Credit”?

If you contribute to a retirement plan, like a 401(k) or an IRA, you may be able to claim the “Saver’s Credit”. This credit can help you save for retirement and reduce the tax you owe. Here are some key facts that you should know about this important tax credit:

  • Formal Name.  The formal name of the Saver’s Credit is the “Retirement Savings Contribution Credit”. The Saver’s Credit is in addition to other tax savings you get if you set aside money for retirement. For example, you may be able to deduct your contributions to a traditional IRA.
  • Maximum Credit.  The Saver’s Credit is worth up to $2,000 if you are married and file a joint return. The credit is worth up to $1,000 if you are single. The credit you receive is often much less than the maximum. This is due in part because of the deductions and other credits you may claim.
  • Income Limits.  You may be able to claim the credit depending on your filing status and the amount of your yearly income. You may be eligible for the credit on your 2014 tax return if you are:
    • Married filing jointly with income up to $60,000
    • Head of household with income up to $45,000
    • Married filing separately or a single taxpayer with income up to $30,000
  • Other Rules.  Other rules that apply to the credit include:
    • You must be at least 18 years of age.
    • You can’t have been a full-time student in 2014.
    • No other person can claim you as a dependent on their tax return.
  • Contribution Date.  You must have contributed to a 401(k) plan or similar workplace plan by the end of the year to claim this credit. However, you can contribute to an IRA by the due date of your tax return and still have it count for 2014. The due date for most people is April 15, 2015.
  • Form 8880.  File IRS Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit.

 

IRS TAX PROBLEMS – What is Bartering Income?

IRS TAX PROBLEMS – What is Bartering Income?

Bartering is the trading of one product or service for another. Often there is no exchange of cash. Some businesses barter to get products or services they need. For example, a gardener might trade landscape work with a plumber for plumbing work.

If you barter, you should know that the value of products or services from bartering is taxable income. This is true even if you are not in business.

Here are a few facts about bartering:

  • Bartering income.  Both parties must report the fair market value of the product or service they get as income on their tax return.
  • Barter exchanges.  A barter exchange is an organized marketplace where members barter products or services. Some operate out of an office and others over the Internet. All barter exchanges are required to issue IRS Form 1099-B, “Proceeds from Broker and Barter Exchange Transactions”. Exchanges must give a copy of the form to its members who barter each year. They must also file a copy with the IRS.
  • Trade Dollars.  Exchanges trade barter or trade dollars as their unit of exchange in most cases. Barter and trade dollars are the same as U.S. currency for tax purposes.  If you earn trade and barter dollars, you must report the amount you earn on your tax return.
  • Tax implications.  Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.
  • Reporting rules.  How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on IRS Form 1040, Schedule “C”, “Profit or Loss from Business”.

 

IRS TAX PROBLEMS – File on Time Even if You Can’t Pay

IRS TAX PROBLEMS – File on Time Even if You    Can’t Pay

QUESTION: Do you owe more tax than you can afford to pay when you file? If so, don’t fail to take action. Make sure to file on time. That way you won’t have a penalty for filing late. Here is what to do if you can’t pay all your taxes by the due date.

  • File on time and pay as much as you can.  You should file on time to avoid a late filing penalty. Pay as much as you can with your tax return. The more you can pay on time, the less interest and late payment penalty charges you will owe.
  • Pay online with IRS Direct Pay. “IRS Direct Pay” is the latest electronic payment option available from the IRS. It allows you to schedule payments online from your checking or savings account with no additional fee and with an immediate payment confirmation. It’s, secure, easy, and much quicker than mailing in a check or money order.
  • Pay the rest of your tax as soon as you can.  If it is possible, get a loan or use a credit card to pay the balance. The interest and fees charged by a bank or credit card company may be less than the interest and penalties charged for late payment of tax.
  • Use the Online Payment Agreement tool.  You don’t need to wait for IRS to send you a bill to ask for an “Installment Payment Agreement”. The best way is to use the “Online Payment Agreement Tool” on IRS.gov. You can even set up a direct debit installment agreement. When you pay with a direct debit plan, you won’t have to write a check and mail it on time each month. And you won’t miss any payments that could mean more penalties. If you can’t use the IRS.gov tool, you can file IRS Form 9465, “Installment Agreement Request” instead. You can view, download and print the form on “IRS.gov/forms” anytime.
  • Don’t ignore a tax bill.  If you get a bill, don’t ignore it. The IRS may take collection action if you ignore the bill.

 

IRS WARNING – Phone Scams Continue to Be Serious Threat Nationwide

IRS WARNING – Phone Scams Continue to Be Serious Threat Nationwide

As April 1st arrives, the IRS warns taxpayers not to be fooled by the tricks scammers use to take advantage of those they target. Scammers use fake names, provide bogus IRS badge numbers and alter caller ID numbers to make it look like the IRS is calling.

With the final two weeks of the filing season about to begin and millions preparing their returns, taxpayers should be alert.

This is no April Fool’s joke. Everyone should be on the lookout for threatening calls from people faking IRS phone numbers and demands for immediate payment,” IRS Commissioner John Koskinen said. “These are scams. I urge taxpayers to stay vigilant and remain aware of the constantly changing tactics used by these criminals.

As the filing season nears its end, there has been a surge of phone scams where scam artists threaten police arrest, deportation, license revocation and other threats.

They often leave “urgent” callback requests and sometimes prey on the most vulnerable people, such as the elderly, newly arrived immigrants and those whose first language is not English. Scammers have been known to impersonate agents from IRS Criminal Investigation as well.

Here are five (5) things the scammers often do but the IRS will not do.

The IRS will not:

  • Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.
  • Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

  • If you know you owe taxes or think you might owe, call the IRS at 1-800-829-1040. The IRS workers can help you with a payment issue.
  • If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484 or report it online at the “IRS Impersonation Scam Reporting Page”.
  • If you’ve been targeted by this scam, also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. If the complaint involves someone impersonating the IRS, include the words “IRS Telephone Scam” in the notes.

REMEMBER, too, the IRS does not use email, text messages or any social media to discuss your personal tax issue involving bills or refunds. For more information on reporting tax scams, go to IRS.gov and type “scam” in the search box.