Negotiating With the IRS: What You Need To Know

Negotiating With the IRS: What You Need To Know

Posted by Kienitz Tax Law on with 0 Comment

Of the various types of financial debts, owing the IRS money for unpaid taxes is among the worst. Not only are most tax debts non-dischargeable in bankruptcy, but the IRS has powerful tax collection tools, such as tax liens and levies. 

Despite the upper hand the IRS often has when it comes to tax enforcement, there’s still room for negotiating with the IRS. These talks can arise when trying to settle a tax debt for less than the full amount, comply with an audit request, or appeal an IRS decision. No matter what you’re negotiating, keep the following tips in mind.

Tip #1: Follow IRS Instructions and Procedures

If there are special procedures or rules for something, such as filing an appeal or requesting tax relief, follow these explicitly outlined steps unless the IRS or a qualified tax professional says otherwise. The majority of people you might interact with at the IRS are overworked and probably under a lot of pressure to process cases and requests as quickly as possible. 

This is particularly true given the current political climate and how the IRS is an easy target for many politicians on both sides of the political aisle. So the last thing you want to do is ask the IRS for something without following instructions, as it gives the IRS an easy way to reject your request. 

If an IRS worker can undermine your negotiating position on a technicality in 30 seconds instead of taking five minutes to review the merits, you have to assume they’ll take the path of least resistance.

Tip #2: Have All Relevant Information Before Contacting the IRS

If you receive a tax notice or letter from the IRS informing you about an outstanding tax balance, there will probably be a phone number, fax number, and/or address for you to use to address the concern. Before reaching out, make sure you know the relevant facts to your case, as well as have any necessary documents.

For example, if you think you can lower your tax bill with First Time Abate penalty relief, it might be a good idea to confirm your history of good tax compliance by obtaining your tax transcripts and records from the IRS.

Tip #3: Be Polite and Considerate

Even if you believe the IRS is the most evil organization in the world, is an unconstitutional overreach of federal power, or all of the above, when you talk to an IRS employee, treat them with respect. Remember that they’re people too, so they have feelings and emotions, as well as families, personal struggles, and financial challenges.

Therefore, making them angry, mad, or offended is unlikely to help your case, and neither is deliberately trying to make their job more difficult. If the IRS employee sees you’re trying to be reasonable and accommodate their position, they’re far more likely to do so with you. 

This is especially true during audits, where you might need more time to respond to an IRS request for documents or information. If you’ve been prompt with prior responses or accommodating to the revenue agent’s busy schedule, they’ll be more willing to accommodate you if you need an extension or a meeting rescheduled.

Tip #4: “If Mom Says No, You Can Always Ask Dad”

IRS employees aren’t your parents (although it might feel that way sometimes, and not in a good way), but you can still follow the strategy of not giving up just because one parent says no to your request. Depending on your tax case, if you call the IRS to make a request, the first person you call might say no. Don’t accept this is the final decision from the IRS and instead try calling again to ask a different IRS employee.

IRS employees sometimes get things wrong and make incorrect decisions or make mistakes with the information they give taxpayers. Or, there’s a chance you reached out to someone when they were having a bad day. As a result, it’s a good idea to try speaking with someone else who might be more willing to hear your side and negotiate a resolution that’s more favorable to you.

Tip #5: “Trust, But Verify”

If the IRS makes a decision or gives a response you disagree with, ask for the legal basis for the decision. Whether it’s a court case, IRS regulation, federal statute, or internal policy that controls how the IRS is supposed to handle your situation, you want to know what it is so you can double-check what the IRS is telling you. This information will also come in handy if you decide to challenge the IRS’ decision, whether in court or through an informal appeals process.

Consider Talking to a Tax Resolution Professional

Negotiating with the IRS is a lot like any other negotiation. The problem is that not everyone likes to negotiate or feels confident doing so. Then there’s the time and effort required to negotiate with the IRS. Hiring a tax professional can help with these potential negotiating hurdles. To learn about what Kienitz Tax Law can do for you when negotiating with the IRS, contact us to schedule a free consultation. 

 

 

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How to Avoid an IRS Tax Audit

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Paying taxes to the IRS is bad enough, but getting audited might be worse. It’s one thing to get an
unexpected tax bill, but spending so much time gathering documents and complying with revenue agent
requests makes it feel like the IRS is adding insult to injury. While there’s no comprehensive list of IRS
audit triggers, the following is a discussion of red flags that could lead to an audit.

Underreporting Income

One of the biggest reasons for a tax audit is that the income reported on a tax return doesn’t match
income information that the IRS receives from third parties. Your employer, bank and any other
institutions where you generate reportable income usually report that income directly (or indirectly) to
the IRS with W-2s and 1099s.

Using Round Numbers

Whether it’s income or an itemized deduction, very few independent contractor taxpayers rarely make
exactly $70,000 annually or have deductible business expenses for travel and client lunches that add up
to a perfect $4,000 for the year. Using round numbers probably doesn’t automatically result in an audit,
but likely serves as one of several factors when deciding who to audit.

Unusual Tax Deductions

If you claim a large number of deductions or deductions that seem out-of-place for your profession,
then those could potentially raise audit red flags. For example, if you work from home, then a home-
office deduction is to be expected. But if this deduction is also claimed along with an energy-efficient
commercial building deduction, then that could seem a bit odd to the IRS.

Another example is one or more large charitable deductions when you earned a comparably small
income. Think about it, it’s not unusual to earn $50,000 in a year and claim a $300 deduction to a local
charity organization. But if you earned $20,000 and made a $8,000 charitable donation, that’s a bit
unusual and could trigger the IRS asking that you produce documents to substantiate the deduction
and/or your income.

Consistent Business Losses

The IRS is wary of individuals who try to claim business-related deductions and losses for activities that
are hobbies. You might enjoy fishing and think you can write off the cost of your fishing boat as a
business expense because you also claim you’re a professional angler.

One way for the IRS to see if you really use your fishing skills to pay your bills and feed your family is to
see if your business turns a profit. It’s common for businesses to have down years, but the IRS often
views several consecutive years of business losses as a possible sign that someone’s engaged in a hobby
and not a career. If the IRS has this suspicion, they sometimes conduct an audit to see if they’re right.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is often improperly claimed. This is usually the result of confusion
about credit eligibility. However, as a result of the high frequency of EITC errors, the IRS pays special
attention to tax returns that claim these credits.

Earning Too Much or Too Little

Generally speaking, taxpayers at the lower and higher-income scales are at higher risk of audit .
Specifically, the biggest risk of an audit came from those earning less than $50,000 or more than $1
million per year. This makes sense, as lower-income filers tend to be more likely to claim certain tax
credits, such as the EITC and higher-income filers have money to make an audit and other tax collection
activities worth the IRS’ time and effort. There’s also the fact that wealthier taxpayers often engage in
more aggressive tax avoidance strategies.

Inconsistent Income

Large swings in income can sometimes indicate that the income isn’t being properly reported to the IRS.
For instance, if you earned $145,000 per year for five years, then your income dropped to $65,000 for
the next few years, that probably won’t lead to an audit in and of itself. But change things around a bit
and you go from earning $145,000 for five years, then $65,000 for one year, then back up to $150,000 in
the next year. Now the IRS might suspect you underreported your income during the year you made
$65,000.

Worried About a Tax Audit?

The exact triggers for an IRS audit aren’t publicly known, but the above should give you a rough idea of
things you can try to reduce your chances of an audit. If you’re particularly worried about an audit, it
might be worth talking to a tax professional. They can help you identify potential risks and should you
get audited, assist you through the process.

 

 

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal
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What to Do if You Can’t Pay Your Taxes?

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For many, taxes are annoying. This is especially true when it comes to filing tax returns. Then some oppose taxes on moral grounds. 

Another reason to hate taxes is the difficulty in paying them. This can sometimes arise when an unexpected tax bill arrives in the mail.

So, what happens if you can’t afford to pay your taxes? This is a common problem, so the IRS has several options available. Most of these require paying your entire tax debt over time, plus any applicable penalties and interest. In rare cases, the IRS will “forgive” some or most of the tax debt. But before you get your hopes up, let’s look at how these tax resolution possibilities work.

Offer in Compromise (OIC)

This is one of the most talked-about tax relief options, and for good reason. It allows eligible taxpayers to settle their tax debts for less than the full amount. The IRS agrees to consider a tax debt as “fully paid” through the use of an OIC in three scenarios:

  • Doubt as to Liability: There’s a legitimate question as to whether you owe the tax debt in question or, if you do owe it, there’s uncertainty as to the total amount you owe.
  • Doubt as to Collectibility: You don’t have the financial resources to pay the full tax debt.
  • Effective Tax Administration: You can afford to pay the full tax debt, but doing so would create an unreasonable economic hardship or be inequitable.

Getting the IRS to accept your OIC request is difficult. Statistics vary each year, but acceptance rates typically range between 34% and 50%. The application process can be extensive, requiring significant effort to compile and complete the necessary paperwork. And it can take up to two years for the IRS to review your request and make a decision. 

Currently Not Collectible (CNC) Status

If you’re financially unable to make even partial payments to the IRS to pay off your tax debt over time, the IRS will place your tax account in “currently not collectible” status. While in CNC status, the IRS won’t take any tax collection efforts until your financial situation gets better. As nice as this sounds, there are several caveats to know about.

First, this doesn’t make the tax debt go away, and because the balance remains, any applicable penalties and interest continue to accrue. Second, it’s not easy to receive CNC status, as it often only applies to taxpayers who are in severe financial trouble. Third, the IRS may file a tax lien against your property while you have CNC status. Fourth, this temporary delay is just that—temporary. This means the IRS will periodically review your financial situation to reassess your ability to pay your unpaid taxes.

Payment Plans and Installment Agreements

This is probably the most popular option for taxpayers who can’t pay their entire tax bill all at once. With a payment plan (also called a short-term payment plan), you have an extra 180 days to fully pay your tax bill. Payment plans are only available if you owe less than $100,000 in taxes, penalties, and interest.

With an installment agreement (also called a long-term payment plan), you can take up to 72 months to pay off your tax debt. To be eligible for an installment agreement, your outstanding balance must be less than $50,000 in taxes, penalties, and interest.

In special situations, you might be eligible for a Partial Payment Installment Agreement (PPIA). This is an installment agreement where you agree to make monthly payments until the statute of limitations for the IRS to collect your tax debt expires (usually referred to as the CSED, or Collection Statute Expiration Date). At this point, any remaining balance you have with the IRS is wiped away or “forgiven.”

Penalty Relief

One of the easier ways to lower your tax bill so that you can settle it for less than the full amount is with penalty abatement. This is where the IRS agrees to remove some of the tax balance attributable to penalties in situations where you tried to do the right things with your taxes but were unable to do so for reasons beyond your control. Penalty relief is available for a wide variety of penalties, such as: 

  • Failure to File
  • Failure to Pay
  • Accuracy-Related
  • Dishonored Check
  • Underpayment of Estimated Tax

There are several types of penalty relief available:

  • First Time Penalty Abate
  • Administrative Waiver
  • Reasonable Cause
  • Statutory Exception

The penalty relief request process depends on which penalty you’re trying to reduce and your reasons for making the request. In some cases, a simple phone call to the IRS asking for penalty relief will suffice. In other cases, a more formal written request is needed.

Have a Tax Debt You Can’t Afford to Pay?

If you’re having trouble paying a tax bill from the IRS (or the California FTB), there are tax relief options available. They may not be perfect, but they can help. To learn more, contact a tax professional.

 

 

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal
Get a FREE Case Evaluation

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What’s a Tax Identification Number (TIN)?

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If you’re filing a tax return, chances are high that you need a tax identification number (TIN) to do so. As its name implies, it’s a number the IRS uses to help identify taxpayers, whether they’re an organization or individual. If you’re like most individuals, you’re probably using your Social Security number (SSN) as your TIN. However, there are other identification numbers used by the IRS. Let’s take a look at some of these and why they exist.

Employer Identification Number (EIN)

This is the tax identification number for most businesses and tax-exempt organizations. It’s also used by trusts and estates with reportable income.

If you need an EIN, you can apply for one for free online. It should only take a few minutes if you have all of the necessary information available (type of organization and the TIN of the responsible party who controls the organization).

Individual Taxpayer Identification Number (ITIN)

This is a TIN for individuals who aren’t eligible for an SSN. The ITIN is a nine-digit number presented in the same format as an SSN (XXX-XX-XXXX), but always begins with the number “9.” Most people who use an ITIN are resident or nonresident aliens (and/or their spouses and dependents).

To obtain an ITIN, you must complete IRS Form W-7, IRS Application for Individual Taxpayer Identification Number.

Taxpayer Identification Number for Pending U.S. Adoptions (ATIN)

The ATIN is one of the rarest of all TINs, as it’s a temporary nine-digit number that the IRS gives to individuals who are in the process of adopting a child. ATINs exist for situations where the adopting parents are unable to obtain an SSN for their child in time to file their tax returns.

Parents can obtain an ATIN by completing IRS Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions. Keep in mind that this form isn’t used if the child being adopted is not a U.S. citizen or resident.

Preparer Taxpayer Identification Number (PTIN)

These are numbers used by tax preparers to identify themselves on returns they help prepare for their clients. Since 2011, all paid tax preparers have had to use a valid PTIN for all tax returns they were paid to prepare. The reason for this rule was to protect the preparers’ private information, as they previously had to use their SSNs when filing tax returns for their clients.

There are two ways to obtain a PTIN. First, you can apply online. Second, you can apply by mailing in IRS Form W-12, IRS Paid Preparer Tax Identification Number (PTIN) Application and Renewal. It should be noted that the online process is much faster, taking as little as 15 minutes compared to the paper method which can sometimes take over a month to process. Because PTINs expire at the end of each year, you’ll need to reapply each year to keep your PTIN active.

Identity Protection PIN (IP PIN)

This isn’t technically a TIN, as it’s not used to help identify the taxpayer filing a return. Instead, it’s used to confirm the identity of the person filing a tax return. Therefore, the goal of the IP PIN is to prevent tax-related identity theft.

The IP PIN works because it’s a six-digit number that only the IRS and the taxpayer is supposed to know. When an identity thief tries to file a tax return using someone else’s SSN and doesn’t provide the correct IP PIN (or doesn’t provide one at all), the IRS will recognize that return as fraudulent. This can help prevent scammers from stealing tax refund checks, for example.

Even if an individual isn’t required to file a tax return for a given year, the IP PIN can still be helpful because it can protect that individual’s IRS account from scammers trying to access or alter personal information.

If the IRS confirms that you’ve been the victim of tax-related identity theft, you’ll automatically get an IP PIN from the IRS when it mails you a CP01A Notice each year. Yet you don’t need to wait until you’re an ID theft victim to obtain an IP PIN.

To obtain an IP PIN as a preventative measure, you can request one through your online IRS account. If you do this, you’ll need to sign onto your online IRS account each year to obtain your new IP PIN. These are typically issued starting in mid-January.

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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New Tax Scams for 2025 to Watch Out For

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Tax season is in full swing, which means tax scammers are working overtime to find new targets. Over the next month or two, these con artists will make use of the complexity of the tax code and take advantage of taxpayers feeling financial pressure to pay their taxes and meet the April 15 filing deadline. The following is an overview of some of the more recent tax scams, many of which utilize the same strategies from years past, but with slight changes to take advantage of new technology.

Tax Scam #1: Phishing Schemes

Phishing has been around for decades, but with advancements in artificial intelligence (AI), they’re getting more sophisticated. For example, emails and text messages have been traditionally used for phishing cons, but most of the time, they’ve been fairly easy to spot.

They would often contain poor wording, incorrect identifying information, and typos, all of which made them stand out. But with the help of AI, these fake emails and texts are much harder to notice. Scammers use AI to generate more realistic messages that contain the personal information of the recipient, such as their name and address.

If you receive an email or text message purporting to be from the IRS, a bank, or other financial institution, don’t click on any links contained in the message. If you think it’s a legitimate message, use a search engine, like Google, to find a link to that organization’s website.

Finally, phishing scams can be found in other contexts, such as social media. A scammer might send you a DM or make a post about “secret” or “unknown” tax hacks or laws that can save you money or get you an unclaimed tax refund. Do not click on the links contained in these messages, as they may take you to a website designed to steal your personal information.

One thing to remember is that the IRS won’t initiate contact with you via email or text. If there’s an unclaimed tax refund or tax issue that needs your attention, the IRS will first send you a letter. They usually won’t text, call, or email you about a tax issue until after they’ve already brought the issue to your attention by letter or you’ve given the IRS permission to contact you in that particular way. The IRS has a great webpage that explains how and when they’ll contact you.

Tax Scam #2: AI-Generated Phone Calls

AI isn’t limited to just phishing messages. One of their best and newest applications has been with AI-powered phone calls. Scammers used to make the calls themselves or employ an easy-to-detect recording to try to trick targets. But now, with access to AI, these scammers can take a voice recording of a real person to create a personalized message that asks you for personal information.

AI may also be used to engage in fake conversations with you. The AI algorithms are designed to answer some of the more common questions or give preprogrammed responses to anticipated reactions from targets. As a result, it’s sometimes hard for potential targets to know they’re talking to a computer and not a human.

The best way to detect these sophisticated scam calls is to ask random questions. Instead of asking why “they” need the information, instead ask about the caller’s hometown or how long they’ve been working for the IRS. AI has come a long way over the past few years, but they’re not quite advanced enough to handle these unexpected questions from humans…at least for now.

Tax Scam #3: Fraudulent Tax Preparers

Some scammers pose as tax preparers who often lure victims with promises of money, such as large tax refund checks or other tax benefits. Their goals are usually two-fold. First, it’s to obtain personal information, such as date of birth, address, and Social Security number, and use that to file a fake tax return and steal a tax refund check. Second, it’s to obtain a fee for fake tax services.

For instance, they might say they can prepare your tax return and promise you a massive check from the IRS. In return, they need you to first pay them a tax preparation fee. After you pay this fee, they ghost you with no realistic chance of you ever getting your money back.

The good news is that most of these tax scammers can be spotted in advance. Here are some common fake tax preparer red flags:

  • Promises or guarantees of large tax refunds.
  • Can’t provide you with a Preparer Tax Identification Number, or PTIN.
  • Asks you to sign your tax return before you can review it.
  • They don’t show up in an online search, or if they do, they have a lot of negative reviews.

Conclusion

Tax scams can target you at any time, but the time before the April 15 filing deadline is when they’re most likely to reach out to you. If you believe someone has tried to use a tax scam on you, you should report it to the Federal Trade Commission, Internet Crime Complaint Center, or the Treasury Inspector General for Tax Administration.

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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Five Tips for the 2025 Tax Filing Season

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The IRS just announced that the 2025 tax filing season has officially begun as the IRS is now accepting and processing 2024 individual income tax returns. If you’ve decided to prepare your 2024 income tax return yourself, here are five tips to remember.

Tip #1: File Electronically

Filing your return electronically reduces the chances of errors on your tax return. This is because tax return software will do the arithmetic for you and check for common mistakes many taxpayers make, like missing information.

If you’re worried about the cost of using tax preparation software, the IRS offers IRS Free File. This allows eligible taxpayers to prepare and file their federal returns electronically using guided tax preparation software. You’ll most likely qualify to use this if you have an adjusted gross income (AGI) of $84,000 or less. In California, the threshold for AGI is $244,857.

There’s also Direct File, where taxpayers from 25 states can file their tax returns directly with the IRS for free. You can use Direct File from almost any device, including your computer, smartphone, or tablet. You’ll also have access to live IRS staff, Monday – Friday, from 7 a.m. to 10 p.m. EST.

If you choose to file electronically, it’s also recommended that you select direct deposit to receive your tax refund. Not only is it faster, but it’ll reduce refund check issues, such as getting lost in the mail, going to the wrong address, or being stolen.

Tip #2: Avoid Tax Scams and ID Theft

Taxes are confusing, so tax season is the prime time for scammers and ID thieves to prey on taxpayers who don’t fully understand taxes or the tax preparation process. Here are a few tips to avoid getting scammed or having your identity stolen:

  • If something sounds too good to be true, it probably is.
  • Avoid any tax “professional” who uses threats or pushy and aggressive sales tactics.
  • Be wary of clicking on links sent to you by email or text message.
  • Verify tax advice given by individuals on social media.
  • If you need to pay a tax bill to the IRS, be aware that the IRS won’t accept gift cards or other unusual forms of payment. The IRS will usually accept payment by check, money order, cash (but only through their retail partners), bank wire, electronic funds withdrawal, credit card, debit card, and digital wallet.
  • Don’t give out your date of birth and Social Security number unless necessary and only to trusted entities.

If you believe you might have been targeted (or a victim) for tax ID theft or a tax scam, report it.

Tip #3: Look Out for 1099-K Forms

The IRS has been slowly implementing new rules regarding 1099-K forms. These are tax documents you might receive from online marketplaces and payment service providers, like eBay, Etsy, Venmo, and PayPal. For 2024, the federal reporting threshold for generating a 1099 was $5,000. However, some states have lower thresholds and, therefore, some companies might send you a 1099-K if these lower thresholds apply to you. The IRS does require that all income is reported, even if a 1099-K is not received.

Tip #4: Double-Check Your Tax Documents

If there’s an error with your 1099 or W-2, contact your employer or financial institution to fix it or get clarity on the discrepancy. You need to do this to avoid mistakes or omissions on your tax return, as these could lead to a closer look by the IRS and tax headaches.

Tip #5: Get a Filing Extension if You Need It

Your 2024 income taxes are due on April 15, which is the traditional tax deadline. However, this will sometimes be a day or two later if the 15th falls on a weekend or holiday. If you think you need more time to file your return, you can ask for an extension. This extension will usually provide an extra six months to file your return. Just remember that this extension applies to filing your return, not paying any taxes owed. If you believe you’ll owe taxes for the 2024 tax year, you’ll want to send an estimated tax payment to the IRS along with your extension request.

Need Extra Help with Your Taxes?

If you have a simple tax return, you can probably prepare and file your return on your own. But, if you have questions or want extra peace of mind, contact a professional tax preparer for additional assistance.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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What’s a W-2 Tax Form?

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If you’re like millions of workers, you’re employed as an employee. Assuming this applies to you, you can likely expect to receive an IRS Form W-2 from your employer within the next month or so. This is an important document to help you prepare and file your income tax return due in April. But why is the W-2 so important and is it always required to file your taxes? The goal of this blog post is to address these questions and provide an overview of this ubiquitous tax document.

What is a W-2 Tax Form?

Also known as a Wage and Tax Statement, the W-2 Form is a document that your employer sends you and the IRS that outlines how much compensation you received and how much of that compensation your employer withheld for income and payroll tax purposes.

Do All Workers Receive a W-2?

No, it’s usually only employees that get them. Freelancers and independent contractors will typically get Form 1099 from their client or employer instead. In these situations, the employer won’t normally withhold any of the compensation for taxes. So, it’s up to the independent contractor to pay estimated quarterly taxes to the IRS.

You also need to earn enough compensation before your employer creates a W-2 for you. If you receive $600 or more in cash or noncash payments during the tax year as an employee, only then is your employer legally required to send you a W-2 (and a copy to the IRS).

When Should I Receive My W-2?

Assuming your employer is required to create a W-2, they must send it to you and the IRS by January 31. These can be mailed, but they’re sometimes sent electronically, either by email or made available for downloading from a payroll-related website.

If you don’t get it by the middle of February, you should contact your employer to make sure they sent it and, if so, used the correct email or mailing address.

What if the W-2 is Wrong?

You should contact your employer and have them correct or clarify the information and, if necessary, send you a corrected W-2. If this results in you being unable to file your tax return by the April 15 deadline, you can contact the IRS and ask for an extension.

Alternatively, you can estimate your earnings and tax withholdings yourself, such as by reviewing your pay stubs. You may also need to complete IRS Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. (yes, the official name of this form really is that long).

How are W-2 Forms Different from W-4 Forms?

A W-2 summarizes your compensation and taxes. In contrast, IRS Form W-4, Employee’s Withholding Certificate, is something you fill out to give your employer information about your tax filing status. They then use this information to withhold the correct amount of taxes from your paycheck.

What’s IRS Form W-2G?

IRS Form W-2G, Certain Gambling Winnings, is a summary of your reportable gambling winnings that may be subject to income tax. Think of Form W-2G as a W-2 form, except it’s for income that comes from gambling, not your day job.

If your gambling winnings at a casino or other gambling establishment exceed a certain threshold (the exact amount depends on the type of bet you place and how much money you won), then you’ll probably receive Form W-2G the same day you received your gambling winnings. In some cases, you’ll get Form W-2G in late January or early February of the following year (roughly the same time you should be getting your W-2).

Conclusion

In most situations, your W-2 form will be one of the least burdensome of tax documents. When you receive it in February, review it to make sure it’s correct. Then you need to put it in a safe place with your other tax and financial documents until you’re ready to prepare your taxes yourself or hand them over to your tax preparation professional.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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End of Year Tax Planning Checklist Guide for 2024

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It’s the holiday season, which means 2025 is just around the corner. Even though you might be focused on spending time with family and friends and ending your work year on a high note, don’t forget that now’s the time to make certain financial decisions. This is particularly true when it comes to taxes. The following is an overview of things you might want to do or think about before the end of 2024.

Item #1: Check Your Flexible Spending Account

If you have a Flexible Spending Account (FSA), and it’s like most others, then the money in the account must be used up by the end of the calendar year. If it’s not, then the money in the account could be lost forever. So, before January, check your FSA to confirm if it’s a “use-it-or-lose-it” type of account. If it is, see if there are healthcare costs you can pay for with FSA funds. If not, you can check to see if your employer provides an option to minimize a loss of funds. While not required, an employer who offers an FSA to its employees may allow employees to either:

  • Provide up to an extra 2.5 months in the following year for the employee to use the FSA funds, or
  • Allow the employee to carry over up to $660 of the FSA’s funds into the following year.

If your FSA allows for either of these options, they can give you extra time (or money) to pay your medical costs.

Item #2: Check Your Tax Deductions

If you’re like most individual taxpayers, you probably take the standard deduction. However, if you’re on the fence about whether to itemize or take the standard deduction, now’s the time to check your likely tax deductions for 2024. One of the things you’ll be looking for is to see if there are any deductions you missed, as well as whether you still have room to increase these deductions before the end of the year.

For instance, assume you want to itemize your deductions. Also, imagine you’ve made eligible charitable cash contributions that amount to 50% of your adjusted gross income (AGI) and the 60% AGI limit applies to you. In this case, you can consider making one or two final cash donations to take full advantage of this itemized deduction.

Item #3: Take Advantage of Your Losses with Tax-Loss Harvesting

If you’ve invested this year, then you probably have both some capital gains and some capital losses. If in line with your overall investing strategy, consider selling some of your losing investments to “lock in” the losses. Then you can use those losses to offset some, or all, of your capital gains. If you have losses left over, you can use some of those losses to offset ordinary income.

Before making use of tax-loss harvesting, be aware of two key things. First, don’t let the desire to save on taxes persuade you to make a poor investment decision. The last thing you want to do is sell a losing stock that was about to rise and become a profitable investment. Second, be aware of the wash sale rule. If you quickly buy back the investment in 2025 after selling it in 2024, the IRS may disallow you from using the capital losses to offset the capital gains.

Item #4: Maximize Your Tax-Advantaged Retirement Contributions to Your 401(k)

If you have a 401(k), see if you’ve made full use of the tax-advantage benefits it offers. You may not have because you simply didn’t have the funds to maximize your contributions. But, if you have extra money sitting around and haven’t hit your 2024 contribution limits, think about making an additional contribution in December. In case you’re wondering, you have until April 15, 2025 to make contributions to your IRA for the 2024 tax year.

Item #5: Consider Consulting with a Tax Planning Professional

Taxes are complicated, so it’s understandable if you don’t fully comprehend what financial decisions are best for you and your taxes. Because of this, consider contacting a tax-planning professional to discuss your available options. They can examine your tax situation and see if you’re missing something (you don’t know what you don’t know) and also help you avoid future tax problems and disputes with the IRS or CA FTB.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Tax Changes Coming in 2025

Tax Changes Coming in 2025

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If there’s one thing that’s as inevitable as death and taxes, it’s changes to the tax code and 2025 is no different. Luckily, not all of these changes are bad. Let’s take a look at some of the changes coming in 2025 that could affect your bottom line.

Change #1: Revised Tax Brackets

The 2025 tax year will see new tax brackets that apply to income tax returns. This isn’t a massive change or an unexpected one, as the IRS usually changes these each year to adjust for inflation. These are a good thing, as they help prevent taxpayers from getting pushed into higher tax brackets (and pay higher taxes) when they get an annual raise or cost of living adjustment to their income. The new tax brackets are as follows:

  • 10%: For incomes up to $11,925 (Up to $23,850 for married couples filing jointly)
  • 12%: For incomes more than $11,925 ($23,850 for married couples filing jointly)
  • 22%: For incomes more than $48,475 ($96,950 for married couples filing jointly)
  • 24%: For incomes more than $103,350 ($206,700 for married couples filing jointly)
  • 32%: For incomes more than $197,300 ($394,600 for married couples filing jointly)
  • 35%: For incomes more than $250,525 ($501,050 for married couples filing jointly)
  • 37%: For incomes more than $626,350 ($751,600 for married couples filing jointly)

Change #2: Standard Deductions

You can sometimes save more money on your taxes if you itemize your deductions, but many taxpayers appreciate the convenience of standard deductions. The following list shows how much the new standards deductions will be:

  • Single filers: $15,000 (a $400 increase)
  • Married couples filing jointly: $30,000 (an $800 increase)
  • Head of household filers: $22,500 (a $600 increase)

Change #3: Earned Income Tax Credit

For the 2025 tax year, the maximum Earned Income Tax Credit limit goes up to $8,046 (this maximum was $7,830 for the 2024 tax year). This is the maximum Earned Income Tax Credit a qualifying taxpayer can expect if they have three or more qualifying children. As you might expect, these limits go down if there are fewer qualifying children:

  • Two qualifying children: The new maximum is $7,152 (up from $6,960 in 2024)
  • One qualified child: The new maximum is $4,328 (up from 4,213 in 2024)
  • No qualifying children: The new maximum is $649 (up from $632 in 2024)

Change #4: Estate Tax Credit

The 2025 tax year has a bigger basic exclusion amount of $13,990,000. In 2024 it was $13,610,000.

Change #5: Alternative Minimum Tax Exemption

In 2024, the exemption amount for unmarried individuals was $85,700 ($133,300 for married couples filing jointly). In 2025, these amounts rise to $88,100 for unmarried individual filers and $137,000 for married couples filing jointly. The phase-out threshold is also increasing, with a new amount of $626,350, up from $609,350 in 2024.

Change #6: Adoption Tax Credit

An adoption of a child now has a maximum credit of $17,280, which is up from the $16,810 maximum limit for the 2024 tax year.

Change #7: Transportation Fringe Benefit

The monthly qualified transportation fringe benefit rises to $325, a $10 increase from 2024.

Change #8: Foreign Income Exclusion

In 2025, this exclusion is rising by $3,500 to $130,000.

More Uncertainty Coming in 2025

One of the biggest changes in 2025 is the fact that many key parts of the Tax Cuts and Jobs Act of 2017 will expire. Unless they’re renewed by Congress, key tax benefits that many taxpayers enjoy will be reduced, such as the standard deduction, lower marginal tax rates, and the child tax credit. Given the uncertain political climate and the fact that 2024 is a presidential election year means it’s difficult to plan for these changes. However, consulting with a tax professional can help, especially when planning for worst-case scenarios. bject to Form 8938’s reporting and filing requirements, you should consult with a tax professional.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

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Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

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An Overview of IRS Tax Audits

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The only thing that might be worse than preparing a tax return or writing a check to the IRS is going through a tax audit. That being said, if you’ve just found out that you’re being audited by the IRS, here’s some information to give you a rough idea of what to expect. If you haven’t been audited, you can read about some tips on how to avoid an IRS tax audit.

What is an IRS Tax Audit?

An IRS audit is where the IRS asks to review your financial records to confirm if the information contained on your tax return is accurate and complete. An audit can take place by mail or in person.

Audits by mail are known as “correspondence audits” and are the most common. During a correspondence audit, the IRS sends you a letter asking for more information about certain things on your tax return, like a credit, deduction, or source of income. The IRS will usually ask you to send them copies of documents to support the information or claim on your tax return.

In-person audits don’t happen as often because of how resource-intensive they are for the IRS. Yet you may have an in-person audit if the amount of records the IRS needs to review is too cumbersome to mail. An IRS audit can occur in person at various locations, such as your home or place of business (these are called “field audits”) or at an IRS office (these are called “office audits” or “desk audits”).

How the IRS Chooses Taxpayers to Audit

There are several reasons why the IRS picks a particular taxpayer to audit. The exact reasons and factors the IRS considers aren’t public knowledge, but here are a few potential reasons why your tax return may have been chosen for an audit:

  • Random selection: Few, if any, taxpayers get audited purely due to random chance. However, the IRS likely uses a computer to select a group of returns that are potentially at higher risk of containing a mistake or error, and then randomly selects returns to audit from this group.
  • Statistical comparison: The IRS will often compare your tax return to the returns of taxpayers who are similar to you in some way. If your return appears to be a statistical outlier, then there’s an increased chance the IRS audits your return.
  • Association with another audited taxpayer: If the IRS audits another taxpayer, and you have a financial connection to them, then the IRS may decide to audit you, as well.

How far Back can the IRS Go When Auditing a Tax Return?

It depends. The IRS usually tries to act as quickly as possible once they receive a return they want to audit. This means most audit requests get sent out one to two years after the tax return has been filed. In most cases, the IRS won’t audit a return that’s older than three years.

In relatively rare situations, the IRS will go back even further if they find a large error. Even in these situations, the IRS usually doesn’t audit returns that are more than six years old.

How to Avoid a Tax Audit from the IRS

Keep in mind that you could be subject to an audit even if you’ve done nothing wrong. So, getting audited by the IRS is sometimes inevitable. However, there are things that the IRS looks for when deciding who to audit.

  • Wealthier taxpayers: The more money a person makes, the more likely they’ll be audited by the IRS, at least at the higher end of the income spectrum.
  • Poorer taxpayers: Taxpayers who report little to no income have a higher chance of getting audited than taxpayers who earn “middle-class” incomes.
  • Certain tax deductions: The IRS knows some deductions get abused more than others, such as the home-office and charitable deductions. If a taxpayer claims one of these deductions, there’s a greater chance of an audit. This is especially true if the deduction seems unusual, given the other information reported on the tax return, like reported income.
  • Consistent business losses: A business is supposed to exist to turn a profit, so when a business is in the red year after year, the IRS gets suspicious.
  • Missing income: If the IRS sees that income on a return doesn’t match the income being reported to them (through a 1099, for example), then there’s a greater chance of an audit.
  • Estate tax filings: Tax returns for estates are more likely to get audited because of the higher chance that the taxpayer is undervaluing assets.

Getting Help with an IRS Tax Audit Some audits are fairly simple in that you know exactly why the IRS chose to audit you, and getting them the information to clear things up is easy. But often, the IRS may audit you for reasons you don’t understand and/or ask for information you need help gathering and organizing. If you find yourself in this latter situation, it’s a good idea to talk to a tax professional. And if you think that the audit might reveal information that makes the IRS think you did something illegal, get in touch with a tax attorney before responding to the audit.

All of this can be quite complicated, and the above discussion is only an overview of Form 8938 and the IRS tax reporting requirements for foreign assets and bank accounts. Failing to comply can result in penalties of up to $60,000 and even criminal charges. Therefore, it’s strongly recommended that if you think you might be subject to Form 8938’s reporting and filing requirements, you should consult with a tax professional.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal.

Get a FREE Case Evaluation