Tax filing and tax returns are a perfect time to reexamine your tax situation and decide if some changes are in order.
The year is almost over, but the time to make financial decisions that could affect your taxes in 2022 and/or 2023 is about to begin. Below are a few tasks and considerations to look into before January 1 arrives.
Continue reading “End of Year Tax Planning Guide for 2022”
Every year, the IRS releases its “Dirty Dozen” list of tax scams for taxpayers to watch out for. In this blog post, we identify and explain a few of the more notable scams that have made this list.
Continue reading “2022 Tax Scams the IRS Is Warning You About”
If you get behind on your taxes, you will accrue a tax debt. Tax departments and agencies have special tools to make sure you pay unpaid taxes. Two of the most powerful include the tax lien and tax levy. Let’s take a look at what these are and how they work.
Continue reading “What Are Tax Liens and Levies and How Do You Get Them Removed?”
For the typical taxpayer, they have until around April 15 to file their income tax returns for the prior tax year. The deadline for the 2021 tax year was April 18, 2022. Yet sometimes there are reasons why a tax filer can’t get their tax returns to the IRS by this deadline.
Continue reading “2021 Tax Extension Filers: Why to File As Soon As Possible”
Form 1040 is the standard IRS form when it comes to filing federal income taxes as an individual. Over the years, Form 1040 has been modified to reflect changes in tax law and IRS practice. In some years, Form 1040 saw more changes than other years. The changes from the 2020 Form 1040 to the 2021 Form 1040 aren’t major, but there are still plenty of updates. Let’s take a look at three of the more notable changes for the upcoming tax filing season.
Continue reading “2022 Cha-ch-cha Changes to the 1040! How This Impacts You”
2020 has been quite the year. While it may have felt like the year of the coronavirus would never end, it’s December, which means it’s time to reexamine your tax situation and decide if some changes are in order. This blog post will examine a few tips when you start planning for the 2021 tax season.
Continue reading “2021 Tax Plan: End of Year Tax Planning for 2020”
Tax season is about to start, which means it’s that time of year where you need to be on the lookout for tax documents such as W-2s and 1099s. But what other documents and information do you need to have ready to complete your tax return over the next few months? That precise answer depends on your unique tax situation, but the following guide will provide a good overview of what you might need to have ready when you or your tax preparer files your tax return this year.
Tax season is here again with the dreaded April 15 deadline fast approaching. Some of the more proactive taxpayers out there have already filed their 2016 tax returns and maybe already have their tax refund checks, too. But for those who haven’t yet done the deed, here are a few pointers about filing your return this year.
By now, taxpayers should have all the necessary tax documents to file their taxes, such as any 1099 forms for contract work and W-2 forms for payroll work. These forms are usually sent by employers or clients in late January. If you don’t receive these documents, keep in mind it does not relieve you from the responsibility of declaring your income in your tax return. Also, if you already know what your income is (this can often be readily determined by looking at your invoices and pay stubs), you technically don’t need your W-2 or 1099 forms.
The deadline to file your federal tax return is the same every year: April 15. An exception to this rule is when April 15 falls on a holiday or weekend. In that case, the tax filing deadline is actually the next business day. So the deadline for filing your 2016 taxes is Monday, April 17, right? Nope. April 17 is the Washington DC Emancipation Day holiday. Therefore, the actual deadline for filing your taxes this year is April 18.
Luckily, the IRS allows taxpayers to obtain an extension by submitting Form 4868 with their tax payment. However, taxpayers should still pay as much of their 2016 tax bill as they can by April 18. This is due to the fact that even though the IRS may grant an extension to file the return, they do not grant an extension to submit the tax payment.
So even if the IRS grants a tax filing extension, the taxpayer will still have to pay interest and late-payment penalties if their entire tax bill isn’t paid by April 18. The tax extension doesn’t sound so advantageous after all, and is all the more reason to get your taxes prepared and filed on time.
There are two primary methods of filing your federal tax return. The first is the good ol’ fashioned way of mailing it in. If you do this, don’t forget to sign the return. When filing as a married couple, your spouse will need to sign as well. Keep in mind that when mailing in your return, it will often slow down the speed in which you get a tax refund check. On the other hand, it may theoretically decrease the odds of you getting audited, since the IRS must spend more time and effort to examine a paper return versus an electronic return.
The alternative way to file is electronically. It’s usually more accurate and faster with respect to the time it takes to get your tax refund check. By filing electronically, a taxpayer can expect a tax refund check several weeks sooner than if they filed through the mail with a paper return.
Taxpayers have an extra few days to file their taxes this year with a deadline of April 18. By now, taxpayers should be well on their way to preparing and submitting their 2016 tax returns. And if you need more time to file, you can often get an extension. But understand that the extension only applies to filing your return, not actually paying your taxes.
Working for yourself is great. You get to be your own boss, decide how much (or how little) work you want to do and control your own professional destiny. But working for yourself has its price, one of the biggest being the self-employment tax.
According to the IRS, you are self-employed if you run a business as a sole proprietor, independent contractor or partnership and make $400 or more. Basically, if you’re your own boss, even in a part-time business, you have self-employment earnings as far the IRS is concerned.
The self-employment tax is a 15.3% tax on your income that is really a combination of two taxes: Social Security (12.4%) and Medicare (2.9%). Even if you aren’t self-employed, you’re likely still paying these two taxes, but in much lower amounts.
For the most part, for every $100 anyone earns, the IRS gets $15.30 in Social Security and Medicare taxes. If you are a W-2 wage earner, such as someone who works as an employee for an employer who takes your taxes out for you, you only have to pay half that, or $7.65. The remaining $7.65 is paid by your employer.
If you are self-employed, you have no “employer” to pay half of the 15.3% Social Security and Medicare tax bill. As a result, you’re stuck with paying the entire 15.3% of the Social Security and Medicare taxes, instead of the 7.65% if you were a W-2 wage earner.
If you make over a certain amount ($118,500 in 2015), what you pay in self-employment taxes drops a large amount. Anything you make over that amount is subject to only Medicare taxes and not Social Security taxes.
Finally, the self-employment tax rules apply no matter how old the taxpayer is or if the taxpayer is already receiving Medicare and/or Social Security payments.
If you are subject to the self-employment tax and have an expected end-of-year tax liability of $1,000 or more (after taking all withholdings) you generally have to pay your taxes quarterly. Even if you plan on paying your entire tax liability on April 15th, you must make estimated quarterly tax payments or pay a penalty.
One exception to this quarterly estimate tax payment requirement is when other income tax withholdings amount to 90% or more of your total tax bill. For example, if you make $100,000 per year, but $91,000 comes from a W-2 job and $9,000 comes from self-employment work, you won’t need to make estimated quarterly tax payments. This exception applies even if you will have more than $1,000 in expected end-of-year tax liability.
The self-employment tax isn’t all bad news. The 7.65% in extra taxes you have to pay (compared to a W-2 wage earner) can be taken as a tax deduction. This doesn’t alleviate the entire self-employment tax burden, but it helps.
The self-employment tax isn’t the most complicated tax requirement ever handed down by the IRS, but things can get a little tricky if you have multiple jobs and are really close to the estimated quarterly tax payment threshold. If you’re not sure whether you’re subject to the self-employment tax, are required to make estimated quarterly tax payments or how much those estimated quarterly tax payments should be, you probably want to speak with a tax professional.
The IRS’ official task is to collect taxes as required by the Internal Revenue Code. But because not every taxpayer pays taxes on time or in the correct amount, the IRS effectively becomes a debt collector — and what an effective and powerful debt collector it is.
The IRS has several tools to collect taxes owed. One of its most feared and powerful tools is the tax levy. Tax levies are particularly burdensome because they allow the IRS to take your personal property and assets. Luckily, the IRS can’t go about taking whatever personal assets it wants. It has particular rules about what it can levy and how much it can take.
A tax levy is the actual taking of property by the IRS in order to pay a tax debt. The two main types of tax levies include wage garnishments and the seizure of personal assets.
A tax levy usually won’t occur unless a tax lien has been placed on the taxpayer’s property first. A tax lien is a security interest taken by the IRS in all of a taxpayer’s property. The purpose of the tax lien is to protect the IRS’ ability to collect the tax debt from a particular taxpayer.
The specific types of property the IRS may seize in order to satisfy a tax debt is vast. Examples include paychecks, personal residences (subject to exceptions), vehicles and financial accounts. Basically, almost anything a taxpayer owns can be levied, unless specifically excluded by law. So an easier way to identify which personal assets can be seized by the IRS is to find out what personal assets must be left alone.
Section 6334 of the Internal Revenue Code lists types of property that the IRS may not seize when attempting to recover an unpaid tax debt. These include:
Personal vehicles and residences are subject to IRS seizure, but there are limitations and exceptions to this. Additionally, the IRS understands that there’s no point in taking something that might hinder a taxpayer’s ability to pay its tax debt.
For example, if a taxpayer needs his or her car to get to work, the IRS is probably not going to seize the car. Doing so might result in the taxpayer becoming unemployed and therefore the IRS will have a more difficult time collecting the tax debt.
An overarching theme of the IRS’s seizure powers is that it will take as much as it can to collect its tax debt, but it won’t take so much that the taxpayer is either unable to pay the rest of the tax debt or becomes destitute.
The IRS’ public policy considerations and list of exempt property are hardly going to serve as a consolation to anyone facing a tax levy. A taxpayer facing a potential levy is understandably going to be scared and extremely concerned. In order to stop the IRS from taking your personal property, you’ll likely need help from a tax professional.