Is there such a thing as GOOD NEWS from the Internal Revenue Service?
Tax season used to begin with a vengeance on the second Friday of January. Tax season was delayed the last two years until the end of January. Congress waited until January to decide to extend certain deductions and tax credits. Their delay to act caused a backlog in tax form programming at the Internal Revenue Service.
This year the IRS has announced Electronic Filing of tax returns will begin January 20th. Now that is not a Friday, it’s a Tuesday. Why Tuesday? The reason is because Monday, January 19th, 2015 is Martin Luther King Day.
The first returns to be filed are usually for people who have already received their W2 forms. Wait for all of your W2s if you worked for more than one employer.
Some tax offices still provide a way for taxpayers to get a quick advance of their refund in the form of some kind of bank product. These bank products come at a price, but most people who want this fast refund are taking advantage of what can be called some kind of ” free” money. This free money usually comes from the Earned Income Tax Credit or the Child Tax Credit. These credits are refundable credits. Taxpayers who are able to claim these credits might have a low or even zero income tax liability. They get a refund of more than the amount of taxes they had withheld to pay their income tax. That is why they are called refundable credits.
Because these credits are like free money from the government, some taxpayers are willing to give up some of this free money to pay the cost to get their money quickly. This is not instant cash. It used to be as fast as one or two days. I am not as “up to date” on this information as I once was because my office no longer offers refund anticipation loans. I can tell you that if you have your own bank account, you can have your refund deposited directly to that bank account. This direct deposit used to be as quick as ten days depending on which day you filed your return. The IRS is depositing refunds quickly these days.
Electronic filing, or e-filing, has made such a difference in the processing of tax returns by the IRS. I use professional software to help me prepare accurate tax returns. Tax returns are prepared with fewer errors. They are sent, or filed, electronically to the IRS. The IRS is not keying in data from a paper return that was mailed in, so the IRS makes fewer errors in the processing of the tax return. All this is good news for you.
Even better news for 2015 is that the IRS will be accepting electronically tax returns for 2014, 2013 AND 2012. We can file late, or delinquent, tax returns electronically. They do not have to be mailed as in the past. Some of the more complex returns still have to be mailed. We do still have to mail in amended tax returns. We are making progress with technology. Just like the tax laws, things change.
The mission of the Internal Revenue Service is to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.”
With recent events in the news these past couple of years, we might think the IRS has lost sight of its mission. But when YOU are the taxpayer being audited you need to remember that you have taxpayer rights.
The mission of the auditor is not to assess more tax. The examiner’s job is to determine if you have paid the proper amount of tax. If it is decided that you do owe tax, they will ask you right then how you would like to pay your balance due. They will ask you if you can pay i full or if you need to make arrangements to pay.
It is the job of the IRS Collector, or Revenue Officer, to collect the tax that remains unpaid. You can pay your tax by check payable to the United States Treasury or pay by direct debit from your bank account. If you’d like to pay by credit card be ready to pay a convenience fee because the IRS does not pay the normal retailer’s merchant fee. I do not recommend you pay with cash. You want a receipt to prove how much you paid and when you paid it. Cash just offers a temptation for human theft at any of the levels in the employee chain.
You may find yourself in a position where you are unable to pay your tax. Depending on your financial situation, the Revenue Officer may be able to put your account in what they call currently not collectible status. They will review your uncollectible status at a future determined date to see if your ability to pay has changed.
The IRS has published their Declaration of Taxpayer Rights. It reads as follows:
“1. Protection of Your Rights. IRS employees will explain and protect your rights as a taxpayer throughout your contact with us.
“2. Privacy and Confidentiality. The IRS will not disclose to anyone the information you give us. You have the right to know why we are asking you for information, how we will use it, and what happens if you do not provide requested information.
“3. Professional and Courteous Service. If you believe that an IRS employee has not treated you in a professional, fair, and courteous manner, you should tell that employee’s supervisor. If the supervisor’s response is not satisfactory, you should write to the IRS director for your area or the center where you file your return.”
Everyone at every level has a supervisor. It is your right to request to talk with their supervisor.
These are just the first three of the IRS’ Declaration of Taxpayer Rights. Next week I’ll deal with just Taxpayer Right number four, Representation.
The word TAX can have several meanings. At Bullet Proof Your Taxes, the talk is all about income tax…I want you to pay only your lowest legal tax and not a penny more.
The definition I found online that fits is “a compulsory contribution to state revenue, levied by the government on workers’ income and business profits or added to the cost of some goods, services and transactions.” Tax has also been defined as “a sum of money demanded by a government and a burdensome charge.”
What is a TIP? This word also has several meanings. I regularly give tips, secret information and advice in my articles and on my radio show. However, today I am talking about TIPS which is the acronym for To Insure Prompt Service. A tip, and the amount of the tip, is given for a service performed or a service anticipated.
Tips are a matter of social custom which varies between countries and settings. In some settings a tip is discouraged and considered an insult. While in other circumstances, like law enforcement situations, tips are illegal and could be considered a bribe. In most US locations a tip has become expected, but watch your bill because if you are part of a group at a restaurant, a service charge may been added and included in the total bill. You may not want to add any additional tip because the tip will be paid through that service charge. If you add just a single penny, one lone cent to your tip, you are telling the server that you appreciate their exceptionally good service.
For you servers, tips are considered income and are subject to income tax. If your tips are paid by credit card to the establishment, your employer’s policy will determine whether you are paid them daily in cash or whether they are accumulated and included in your paycheck.
Your tips may be paid by your customer directly to you as cash or gift cards or casino tokens or other cash equivalents. If you receive $20 or more in a calendar month while working for any one employer you must report the total (not just the amount over $20) to your employer by the 10th day of the following month. The amount of those tips will then be reported on your W2. There is a special box on the W2 form just for allocated tip income for workers of large food or beverage establishments.
According to the IRS, at least 40% of tips to servers are not reported for taxation. The IRS has done special focus examinations on tip earners. As a server, it is easy to pocket your cash tips and spend them on the way home for groceries, gasoline, etc. You may not even realize you made more money than your paycheck reflects.
If you think those tips are “free” money to save up for something special, think again. The IRS pays special attention to tip income. It is up to you to keep track of your own total income. Remember, all income is taxable except that which we are told is not taxable.
Ours is a Voluntary tax system. Voluntary does not mean you can volunteer to file your tax return one year and not another. Voluntary does mean that we volunteer our information to the Internal Revenue Service. We voluntarily claim the deductions we enter on our tax returns. Other countries do not have the same kind of voluntary system we enjoy here in the United States.
Remember that anyone who pays you generally has to file a W2 or a 1099 to let both you and the IRS know the income you should be including on your tax return. If you accidentally leave something out you will hear from the IRS. They will want to clarify this with you. If you deliberately omit income from your return, you will hear from the IRS. They will certainly want to talk with you. And you will be flirting with a variety of tax penalties.
When you are paid on a W2, you tell your employer how many exemptions you want to claim. Your income tax withholding is based on the number of tax exemptions you claim. The more you claim, the less tax is withheld. You can adjust you withholding throughout the year with your payroll department.
You may have taxable income from other sources that do not have income taxes withheld. Some of this “other” income could be sale of property, gambling winnings, and most commonly your small business or independent contractor income. You will want to estimate your other income and estimate your taxes to keep from being horribly surprised at tax time.
According to me, Nellie Williams, “An Estimate is not a Guesstimate.” You can quote me on that. An estimate is based on current facts or based on past true numbers. These numbers are not PFA (Plucked From the Air) or WOTC (Written On The Ceiling). They may truly be SALY (Same As Last Year).
Estimated Tax Payments are made every quarter. The trick is, these quarters are not even quarters. To me a quarter of the whole is one-fourth. To the IRS, it is based on their own calendar. Mark the dates 4/15, 6/15, 9/15 and 1/15 on your own calendar if you need to make estimated tax payments.
The First Quarter, or Q1, is a true quarter of three months, January, February and March. Form 1040-ES for Q1 Estimated Tax Payment, is due by the 15th day of the following month, or April 15th.
The Second Quarter is TWO months, April and May Form 1040-ES tax payment for Q2 is due by June 15th.
The Third Quarter is back to three months, June, July, August. 1040-ES tax payment for Q3 is due by September 15th.
The Fourth Quarter covers FOUR months, September, October, November and December. 1040-ES tax payment for Q4 is due January 15th. Understand that the payment you make in the first fifteen days of the following year is really for the previous year. So when you make your January 15, 2015 1040-ES tax payment, it is made in calendar year 2015, but it is applied to your 2014 tax liability.
Your tax return preparer will know how to help you with this. If you don’t have a tax return preparer, you are welcome to consult with me. If you would like to schedule a time to talk, email Nellie@BulletProofYourTaxes.com.
Remember this. Failing to Plan is Planning to Fail. Nobody ever PLANS to pay more than they have to. So keep you eyes open on your own tax situation to keep the IRS out of your wallet.