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Paying Your Taxes Late? This Is What Could Happen 

It’s been a couple of days since the IRS tax filing date was due, which means that, if you forgot or didn’t have time to pay your taxes, you must start thinking about the consequences you might be facing. We should remind you that the longer you wait, the more severe the penalties will be, so try to find the time to pay your taxes to avoid a situation that will not be favorable for you. These are some of the consequences you might be facing if you didn’t pay your taxes on time.  

The very first aspect we must keep in mind is that, if we didn’t pay our taxes by the April due date, which was last Monday, we will be subject to interests and late fees. The IRS charges a failure-to-pay penalty that consists of 0.5 percent of your total balance per month. The maximum percentage that they can charge, though, is 25% of the total balance you owe. This is why it is important to cover our taxes due as soon as we have a chance.  

Besides the late payment penalties we will be subject to, we will also have to pay for interests. Interests are charged based on the federal short-term rate, plus 3 additional percentage points. We should remember that these are daily compounded interests, which begin on the day our tax payment was due. This means that your balance will increase rather quickly, so we should make sure we delay our payment the least time possible, or we will be subject to a much higher balance.  

For those who requested an extension, even when it might have been granted, such an extension doesn’t apply to our balance due. This extension only applies for submitting our income tax report, but if we are expecting to have a balance owed, we need to cover such balance by the April due date. In order to do so, we must fill out Form 4868 so we can pay an estimated amount. The advantage of doing so is that we don’t have to cover the full balance, and if we cover at least 90% of our due balance, we might be able to avoid the failure-to-pay penalty, which does give us extra time to pay the full amount.  

If we are going through financial hardship, the best way to go is to request a payment installment agreement with the IRS instead of simply failing to pay our balance. Besides the extra time and the convenience installment agreements provide, this also reduces the interests we pay, and the rate drops from 0.5% to 0.25% per month. This way, we will make sure we’re minimizing the penalties we are having to cover while still being able to pay out our balance, keeping us safe from much tougher situations, like having our property and bank accounts seized by the IRS.  

Last-Minute Tax Tips to Keep in Mind Before Deadline

As the Internal Revenue Service mentions, approximately a quarter of Americans wait until the last two weeks before the deadline to prepare and file their income tax report. If you are part of that 25% of the population, there are only two possible routes of action, either get around it and prepare your taxes before Monday or request an extension. This way, you will be able to avoid failing to report on time, which would represent getting fines and interests when you finally come around it. Whichever you might choose, we have prepared some important last-minute tax tips you should keep in mind before the deadline arrives.  

Regardless of when we are preparing our tax returns, we must remember that organization is a key element of this important process. It will help us save time and money as we know where every receipt and useful paper are. Keep all your receipts in one place, including those for purchases, payments, business expenses, healthcare, and education. Also, make sure you have all the forms you need, such as Form W-2, which shows your earnings and taxes withheld by your employer.

Whenever we are running low on time, filing our tax returns online is the best way to take advantage of every single minute. This is the most convenient, accurate, and accessible way to file your income tax, and since 1990, almost 1 billion people have filed their taxes electronically. Besides, the vast majority of taxpayers actually file this way, either by themselves or with the assistance of a professional tax preparer. Besides the advantage of accuracy, filing our tax online can also mean a faster refund. 

It is not uncommon to make easily avoidable mistakes when we are preparing our tax return, especially when working against the clock trying to have everything ready. So, make sure you don’t end up overlooking any of these errors since even the simplest one can cause a delay in our refund. The most common tax mistakes include math errors, which can be prevented using a calculator or any tax software, writing our Social Security Number incorrectly, and even forgetting to sing a form. Keep your eyes open and proofread everything.  

With less than a week in the calendar before the deadline is here, having an alternative might be the best route to take for some. If we believe won’t be able to make it to April 15th, considering an extension request could work out for us. When we apply for an extension, this means that we have until October 15th to finish preparing our taxes. However, we must remember that an extension does not grant us more time to pay our owed taxes, so we still need to cover our balance by April. If we were looking for a payment extension, we should contact the IRS and request a payment plan instead.  

4 Common Tax Myths We Shouldn’t Believe Anymore

There are many different misconceptions that some of us might believe, whether because of lack of information, or because we heard someone close to us repeat them. However, debunking this common tax myths will help us have a better understanding of how taxation in the US actually works. We will also feel more confident and trusting of the system, knowing that our taxes are being put to good use.   

To begin with, one of the biggest and most common tax myths is that getting a tax refund is a bad sign. Also, many people still believe that earning more money will make us end up paying more taxes. The way the government spends tax funds is a big and understandable concern but thinking that most go to foreign aid is simply wrong. Lastly, assuming there are plenty of loopholes that benefit the rich and keep them from paying taxes also isn’t accurate.   

Tax Refunds Are a Bad Sign  

Among taxpayers, it isn’t really uncommon to hear some of them getting worried about receiving a tax refund. The idea behind this myth is that you ended up overpaying taxes because the government took an interest-free loan from you. However, this is most definitely not the case. There are many different reasons why you are getting a tax refund, and you should put it to good use. We would spend away small tax refunds, but we can use bigger ones to invest them or pay off debt.  

The More You Earn, The More Taxes You Pay  

One of the most interesting common tax myths is that the more you earn, the more taxes you will pay. This might sound logical at first, but when we understand how tax brackets work, it doesn’t anymore. We can move up from one tax bracket to a higher one when we receive a raise, for example. Nonetheless, thanks to marginal tax brackets, these brackets do not apply to our entire income, only to that marginal amount.   

Most Tax Money Goes to Foreign Aid  

As responsible taxpayers, it makes sense to be concerned about how and where the government is spending our tax money. However, one of the most common tax myths is that the government spends 10% of tax funds on foreign aid. The truth behind this myth? Only 1% is used to aid foreign countries. In case you are wondering, the programs that receive more tax money are Medicare, Medicaid, and other similar programs, getting 26%. Social Security receives 24%, Defense and Security receive 15%, and the Safety Net program receives 9% of tax money.   

The Rich Avoid Paying Taxes through Loopholes  

This has been a common topic of debate, especially since the new tax law came in effect. Besides, Alexandria Ocasio-Cortez’s 70% tax threshold proposal added to this discussion. Many people believe that there are several loopholes within tax laws that benefit the rich. Even when loopholes do exist, they aren’t as many as people believe. Interestingly, such loopholes only benefit the super-rich who earn millions through investment income. Thus, tax-efficiency investment accounts may be what allows such loopholes to work, and not really tax law.   

Self-Employed Tax Tips You Should Keep in Mind

There are still a couple of weeks left to file our income tax report on time and avoid interests and fines. Thus, if we haven’t had the chance to get around it, we still have some time left to take care of such an important matter. However, if we are freelancers or entrepreneurs working on our own company, this might be of great help. We are putting together three useful self-employed tax tips you should keep in mind before filing your income tax report this year.   

We have talked about many different tax credits and deductions available for tax payers, but these are some particularly interesting self-employed tax tips for solopreneurs. For example, deducting house expenses that result from home office activity. Also, health insurance expenses might also be deductible in some cases. Lastly, any education or training expenses that help us develop our current skills can be deductible too.   

Home Office Deduction  

Being self-employed and running your own business is not a difficult task. There are many challenges and situations one must face and overcome, including finding the right location. For many freelancers, working from home is the best way to start a business and keep it running without worrying about having to pay for rent. As a result, you might be able to get a tax break for home office expenses.   

In order to deduct these expenses, you need to calculate the percentage of your home and services that you use exclusively for your business. So, if your home office takes 10% of your house’s square footage, that is the percentage you can deduct. This deduction applies for rent, utilities, insurance, and any other expense that results from working at home.   

Health Insurance  

You might be eligible for a health insurance self-employed deduction, but only in some cases. So, if you signed up for an insurance policy that would cover you, your spouse, and any children younger than 27, this might work for you. This deduction can also apply for dental insurance if you got that too.  

Since this one works as an adjustment to income, there is no need to itemize our income report. However, we might not be eligible in some particular scenarios we should keep in mind. For example, if our spouse already had some kind of coverage plan and we didn’t enroll on it, we could lose this deduction. Especially if their plan was more expensive than the one we got. Therefore, we need to consult with a professional to see if we qualify or not.   

Education Expenses  

It takes a lot of training and preparation to successfully run a business, especially when we are self-employed. Thankfully, we can deduct the expenses of qualifying work-related education and up training. These expenses include tuition, books, lab fees, supplies, transportation, and any other class expenses.   

In order to be eligible for this deduction, this education or uptraining must help us maintain or improve any skills we need in our current job. So, if we are studying to change careers or only to satisfy the minimum level of education required in a job or industry, we might not be eligible for this deduction.   

Remember that the end of tax season is almost here, so if you have any questions about these self-employed tax tips, or any other step of the process, don’t hesitate and get in touch with us.   

Passport and Serious Tax Debt: What You Should Know

There are many consequences we can face if we fail to file our taxes or pay our due balance. These consequences can come in the form of interests and fines, for example. However, another consequence that can come as a result of serious tax debt is the revocation or denial of our passport. Even when this has been in the books for some time, the IRS has been trying to inform and educate taxpayers about the possibility. 

Facing the revocation or denial of our passport isn’t a very common situation. This could only happen when we accrue a seriously delinquent tax debt. Nevertheless, there are different payment plans and programs we can look for. There plans could help us manage our tax debt better. Besides, there are other options available that can help us out, too.  

Revocation or Denial of Passport due to Serious Tax Debt 

Whenever we find ourselves with a seriously delinquent tax debt, the IRS can revoke or deny a passport request. However, we must keep in mind they are not directly in charge of doing so. What happens is that the IRS notifies the State Department of such a debt. Then, the State Department is responsible for the revocation or denial of a passport.  

This is not a very common scenario, though. A tax debt must be of more than $52,000 in order for it to be considered a seriously delinquent tax debt. This balance includes penalties and interests, of course. IF such was the case, the IRS should notify any taxpayer by sending the notice CP508C.  

Payment Programs and Alternatives for Tax Debt 

The IRS offers many different payment programs and plans that can help us pay off any serious tax debt. Frequently, though. Most tax payers qualify for either a payment agreement or an offer in compromise. If we request a payment agreement, we can divide our balance into installments to cover every month.  

However, there are some taxpayers that might qualify for an offer in compromise. This means that we could reach an agreement between the IRS and ourselves in order to cover any serious tax pay. The advantage of an offer in compromise is that we can settle liability for an amount below the current tax amount we owe.  

Other Options Available for You 

If we cannot qualify for a payment arrangement or an offer in compromise, there are still other options out there. For example, the IRS cannot certify any taxpayers as seriously delinquent if the taxpayer has filed for bankruptcy. If you suffered from identity theft or are currently going through a financial hardship, such tax debt doesn’t count, either.  

Negotiating an installment with the IRS could be an option, even when we don’t qualify for an actual payment program. This way, we can reduce the debt and keep it from becoming seriously delinquent. Becoming a permanent resident of a foreign country could be another way to avoid falling such a debt status.  

Regardless of the situation, always remember to consult with a tax professional. They will be able to provide you with the required assistance and guidance in this kind of problems with the IRS. 

Convenient Tax Payment Options to Cover Your Balance

Even when most of us are expecting a tax refund, getting an unexpectedly high bill from the IRS is possible. Since we might be receiving an unpleasant surprise, thinking of convenient tax payment options to cover our balance is essential. This way, we’ll make sure we’re taking care of any possible debt with the IRS beforehand. If we don’t, we might find ourselves subject to different interests and fines.  

Some of us might have enough in our savings to cover our IRS balance, yet there are other convenient tax payment options we can take advantage of. The most common one would be using our credit card to make the payment. If we don’t have one, though, applying for a credit card or personal loan can be another option. We can also ask for an installment plan with the IRS so we can cover our tax balance.   

Use Your Credit Card  

One of the most convenient tax payment options to cover our balance is using our credit card instead of cash. This gives us the opportunity to have some extra time to cover our balance. We all know credit cards can be really helpful yet dangerous if we’re not careful. If we decide to pay the IRS with our credit card, we must remember to pay the card’s bill entirely. Otherwise, we would start accruing interests and even late fees if we forget to pay on time.   

Apply for A Credit Card with 0% Interest  

If we have been thinking about getting a credit card, this might be the perfect time to apply. As we mentioned above, credit card payments can be quite convenient tax payment options as they give us some extra time to actually cover the given amount. Getting a card that offers an introductory 0% interest rate sounds too good to be true. However, some banks tend to have this kind of specials available every once in a while.   

Get A Personal Loan  

Another way to get funds and pay our tax balance is through a personal loan. Depending on our debt to the IRS is the type and amount of the loan we will ask for. We should also keep in mind that, if we don’t pay it on time, we will be subject to interests and some other fees. This is the opposite of what we want, so we must remain careful and consider our expenses.   

Work an Installment Plan with the IRS  

Last but not least, the IRS has many payment options and installment plans available for taxpayers. These installment plans are offered in order to help us avoid interest charges and monthly late fees. If we fail to file our taxes on time or pay the balance we owe by the due date, we are subject to such charges. Thus, the IRS designed payment plans for both individuals and businesses. You can see if you are eligible or not directly through their website.   

4 Tax Scams of 2019 You Must Avoid

With a bit more than a month left to finish our income tax return, scammers and fraudsters are a real danger. Every year, new reports and articles are posted in an attempt to inform and warn unsuspicious tax payers. Therefore, we are listing four of the most common tax scams of 2019 so you can identify them and avoid them before it is too late. This will help us keep our personal information safe and our record with the IRS clean. 

Tax fraudsters and scammers try to use different methods to steal people’s information. Some of these include email phishing, fake refund scams, phone calls pretending to be the IRS, and impersonating tax preparers. So, the best way to avoid falling for these tax scams of 2019 is being informed and paying attention to any suspicious call or email we receive.  

Email Phishing Scams 

Receiving phishing emails has become an everyday part of the digital life. However, when it comes to tax scams, identifying a threat can be trickier than we think. This year, many companies have reported receiving this kind of emails in order to provide sensitive information of their employees. Fraudsters are sending phishing emails to HR and other staff members of companies pretending to be CEOs or Head directors. Through these emails, they try to get employees’ sensitive information to either commit fraud, to steal their identity, or sell the data online.  

Fake Refund Scams 

Scammers are also contacting unsuspicious taxpayers to inform them of an “uncollected refund” check. Then, they ask their victims to provide them with their Social Security Number and bank account info so that they can receive the refund as a deposit. Scammers trick their victims into giving this information by impersonating IRS representatives only to later steal their information. Therefore, we must remain alert and never provide sensitive information by email or phone.  

IRS Phone Call Scams 

One of the most common tax scams of 2019, just as every other year, is receiving a phone call from the “IRS”. What fraudsters do is contact taxpayers and inform them of a tax bill they must pay as soon as possible. In order to convince them of paying, callers threat their victims with being subject to fines and even facing arrest. However, we must remember that the IRS never calls or requests money over the phone, as they only use regular mail to contact taxpayers.  

Fraud Tax Preparers 

Recently, there have been many reports about scammers and fraudsters pretending to be professional tax preparers. This allows them to collect information they can use to either sell online, commit other fraud, or snatch tax refunds. In order to avoid falling for these tax scams, always remember to research a tax preparer beforehand. Also, remember that any tax preparer must have a PTIN, or Preparer Tax Identification Number assigned by the IRS. Besides, their agency should be able to provide you with records that prove they are qualified.  

Surprising Tax Breaks You Should Know About

We’re in the middle of tax season, and the due date to file our income tax is getting closer and closer. If we haven’t been able to do so, there is still some time left to do our research. This way, we might find some surprising tax breaks that you should know about before actually filing your taxes. After all, who wouldn’t appreciate having to pay little bit less on taxes. 

We have talked about different tax deductions before. However, here you will find some surprising tax breaks you may haven’t heard of before. These include charity work expenses, gambling losses, jury duty pay, and guard dog expenses.  

Charity Work Expenses 

Charitable donations are quite common among taxpayers who are looking to get a tax deduction while helping others. However, others like to volunteer and work at different charity organizations instead. If we drive to the location of the organization, the costs generated by parking, toll fees, and even gas (14 cents per mile) can be deducted. Also, if we bought any supplies for such organizations, including food or kitchen utensils, for example, those expenses are deductible, too. If your deduction is more than $250, we might need documentation from the charitable organization.  

Gambling Losses 

Many of us are not that lucky when it comes to gambling and betting. Thus, losing money during a trip to Las Vegas or Atlantic City feels more possible than winning. If we ended up coming back home almost penniless, there might still be a bright side. We can deduct these losses if we go for an itemized deduction. Qualifying losses from casinos, racetracks, bingo, lottery, even raffle tickets count. However, we can’t deduct an amount that exceed any winnings we claim as income.  

Jury Duty Paycheck 

Being summoned for jury service is quite an important civic duty that almost 15% of American adults get to fulfill every year. Having to report for jury duty means days off work, even when the court may pay for your time and services. If your employer offers regular pay or paid leave and receive jury duty pay, this money counts as taxable income. If your employer requires you to hand over any jury duty pay, such pay would still count as taxable income. However, you can claim jury duty pay as a deduction, which would then result in a zero-net gain.  

Guard Dog Expenses 

It is no surprise that some business expenses can be deducted from our federal tax report, such as home office and transportation, However, one of the most surprising tax breaks comes with guard dog expenses. If we use a dog to guard the premises of our business, and it is a certified guard dog, its expenses can be deducted. Costs of food, medical attention, training, etcetera, can qualify for such deduction. Keep in mind it should be of a traditional guard dog breed like Rottweilers and German Shepherds.  

Common Tax Problems and How to Solve Them

For the majority of taxpayers, having to deal with the IRS can only mean that they are in trouble. Even when it sounds worse than it is, there are some very common tax problems that we might have to deal with if we’re not careful. However, having a tax professional on our side is the best way to solve these problems. If you are going through any of this, get in touch with us and we’ll go over your situation.  

One of the most common tax problems is having past-due tax returns that we haven’t filed yet. Being unable to pay the backtaxes and penalties we might have accrued is quite common, too. In more serious cases, the IRS might levy our bank account. Also, having an IRS officer wanting to meet with us can only mean we are in trouble. Nevertheless, remember that all these situations can be easily solved if we work with the right tax professional.  

Past-Due Tax Returns 

One of the most common tax problems we might be facing is having past-due tax returns. Everyone’s situation can be different, and whether you forgot to file, or just didn’t have the time, this has to be addressed as soon as possible. Since we are subject to penalties and interests, acting urgently is quite important. Once we file our past-due returns, looking for a payment plan is the next step. In order to get a payment plan that works for you, get together with your tax consultant and have them work something out.  

Backtaxes and Penalties that Can’t Be Paid 

If we failed to submit our tax return for any number of years, chances are we accrued penalties and interests. This can also be the case if we filed our tax return after the IRS due date. Being able to pay back the penalties, interests, and any owed taxes can be difficult. One way to solve this problem is requesting an Offer in Compromise from the IRS. After they evaluate our financial situation, we might be placed in a Currently Not Collectible status.  

Levied Bank Account 

In some cases, the IRS might levy our bank account in order to collect a balance we might owe them. This means that they either placed a hold or a freeze on our account as an attempt to collect a debt. If this is the case, we will receive a notice by the IRS so we can be aware of the situation. In order to get rid of this levy, we will have to pay off any outstanding balance we might have. However, if we can’t cover such debt, we could request a payment plan. We might also submit a financial hardship waiver, and avoid a bank account levy.  

IRS Officer Wanting to Meet 

One of the least common tax problems, though, is having an IRS officer wanting to meet with us. When they come to our home or workplace, it means that we have become a priority for the IRS. Thus, we should not hesitate and finding a professional tax consultant to help us is a must. If the IRS officer gets to contact us, just take their contact information. A tax advisor should take care of the matter for you. This in order to make sure an arrangement can be made.  

Are You Required to File an Income Tax Return?

We are in the middle of tax season, and while some have already taken care of it, some might still be wondering if they are required to file an income tax return. Now, we need to be aware of the consequences that might come if we fail to file our income tax return. Also, we must figure out whether we are required to do so or not, and what it depends on. This way, we can take advantage of the time we have left to submit such report and avoid any penalty.  

There are three main aspects that will determine whether we are required to file an income tax return or not. Such include our gross income and our filing status, as well as our age. Another reason why you would want to file your taxes is if you want to claim a tax refund. Remember to consult with a professional tax preparer to consult your particular situation.  

Gross Income and Filing Status 

One of the main aspects that determine if we are required to file an income tax return is your annual income and your filing status. There are different income thresholds we should go over, which vary per status. To begin with, if we are to file as a single person, our income threshold is $12,000. If we made less than that throughout the year, we are not required to file an income tax return. This is because, for the tax year 2018, the standard deduction for single tax payers is for that amount.  

The threshold for taxpayers who are married filing jointly is $24,000, and $5 for married taxpayers filing separately. If we are filing our taxes as a head of household, the threshold then goes down to $18,000. For those who decide to file their taxes as qualifying widow or widower with dependent child, the threshold goes up again to $24,000.  

Income of Taxpayers 65 or older 

Another aspect that will help us determine if we are required to file an income tax report is our age. If we turned 65 during 2018, our threshold will also change depending on our filing status. For example, single taxpayers 65 or older have an income threshold of $13,000. If we go for married filing jointly, we will qualify for one of two different thresholds. If only one spouse is 65 or older, the threshold is $25,300, but if both are 65 or older, it goes to $26,000. 

The head of household status also depends on age, allowing for a threshold of $19,600 if we’re 65 or older. Besides, a threshold of $25,300 applies for those who file as qualifying widow or widower with dependent child.  

Claim a Tax Refund 

There are some taxpayers who may not be required to file an income tax return but might want to. If your employer withheld federal taxes for your paycheck, you might qualify for a refund. For example, if your annual income was less than the $12,000 standard deduction, you are eligible for a tax refund. This means that, if your employer withheld $500 of federal taxes, you are entitled to receive that money back. In order to be able to receive such a refund, you are required to file an income tax return, regardless of your income. This is because the IRS won’t automatically issue any refunds, and needs to receive the corresponding tax report.  

If you worked as a freelancer or self-employed during 2018, you might want to read this article instead.