Haven’t Filed an Income Tax Return?
Filing a past due return may not be as difficult as you think.
Taxpayers should file all tax returns that are due, regardless of whether full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. It is important, however, to know that full payment of taxes upfront saves you money.
Here’s What to Do When Your Return Is Late
Gather Past Due Return Information
Gather return information and go visit a professional tax preparer. You should bring any and all information related to income and deductions for the tax years for which a return is required to be filed.
Payment Options – Ways to Make a Payment
There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.
Payment Options – For Those Who Can’t Pay in Full
Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise.
Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.
- A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.
- A monthly payment plan or installment agreement gives a taxpayer more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. In terms of how to pay your tax bill, it is important to review all your options; the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. You should pay as much as possible before entering into an installment agreement.
- A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52 if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.
What Will Happen If You Don’t File Your Past Due Return or Contact the IRS
It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.
Please contact us if you have any questions.
Storing tax records: How long is long enough?
Federal law requires you to maintain copies of your tax returns and supporting documents for three years. This is called the “three-year law” and leads many people to believe they’re safe provided they retain their documents for this period of time.
However, if the IRS believes you have significantly under-reported your income (by 25 percent or more), or believes there may be indication of fraud, it may go back six years in an audit. To be safe, use the following guidelines.
| Business Records To Keep… | Personal Records To Keep… |
| 1 Year | 1 Year |
| 3 Years | 3 Years |
| 6 Years | 6 Years |
| Forever | Forever |
| Special Circumstances | |
Caution: Identity theft is a serious threat in today’s world, and it is important to take every precaution to avoid it. After it is no longer necessary to retain your tax records, financial statements, or any other documents with your personal information, you must dispose of these records by shredding them and not disposing of them by merely throwing them away in the trash.
How do I know if I have to worry about the AMT?
One of the big problems with the AMT, there’s no good answer to this common question. You can owe AMT liability due to any number of reason/s. Could be just one thing, could be a lot of little things. Some things that can contribute to an AMT liability are mundane items that appear on many tax returns. (See this list Top 10 Things that Cause AMT Liability.)
If you use computer software to prepare your tax return, the program should (I would hope) be able to do the AMT calculations for you. If you’re preparing your return by hand, the only way to know for sure is to fill out IRS Form 6251 – a very laborious process, on that I charge almost $80.00 for, and that price is adjusted (usually up) almost every time.
The best way to understand the alternative minimum tax liability is to see how it’s calculated. So, here’s what you do.
First, you figure the amount of tax you would owe under the different rules. What’s different about these rules? Roughly speaking, there are three things:
- Various tax benefits that are available under the regular tax are reduced or eliminated.
- You get a special deduction called the AMT exemption, which is designed to prevent the AMT from applying to taxpayers with modest income. This deduction phases out when your income reaches higher levels, a fact that causes significant problems with the alternative minimum tax.
- You calculate the tax using AMT rates, which start at 26% and move to 28% at higher income levels. By comparison, the regular tax rates start at 10% and then move through a series of steps to a high of 35%.
The result of this calculation is the amount of income tax you would owe under this “alternative” system of tax.
Okay, got that number? Now then, compare this “tax” with your regular tax. If the regular tax is higher, you don’t owe any AMT. However, if the regular tax is lower, the difference between the two taxes is the amount of AMT you have to pay.
You should definitely run the numbers if your gross income is above $75,000 and you have write-offs for personal exemptions, taxes and home-equity loan interest. if your income is over $150,000, run the numbers just because.
Running the numbers means filling out Form 6251. In effect, you are simply adding back some tax deductions and income exclusions to your regular taxable income to arrive at your new alternative minimum taxable income (AMTI).
“Here is where the middle class gets screwed by the goat. If you are planning on doing all this on your own please call a tax pro for some guidance and a better understanding.”
The AMT form has quite a few other pluses and minuses, but you can probably ignore them unless you own a business, rental properties or interests in partnerships or S corporations. If you do, you may need a tax pro to prepare at least the Form 6251 part of your return for you.
Finally, you get to deduct the AMT exemption however, this exemption is reduced by 25 cents for each dollar of AMT taxable income above $150,000 for couples ($112,500 for singles and $75,000 for married filing separate status), and it’s not adjusted for inflation, which is one of the reasons why more people owe the AMT every year.
After the exemption (if any) has been deducted, the result is subject to AMT rates. Again, the AMT brackets are not adjusted for inflation, which causes much greater exposure to the tax as the years go by. If the AMT exceeds your regular tax, you have to pay the greater amount. Basically, the AMT is just more tax, above and beyond your regular tax. Technically, the AMT is just the liability over and above the regular tax, and this figure is entered on page 2 of Form 1040.
Other notes:
To calculate and report your AMT liability you need to fill out Form 6251, Alternative Minimum Tax – Individuals. If you use this form by all means please read the instructions.
You’re required to take your AMT liability into account in determining how much estimated tax you pay. For information about estimated tax payments, see this Guide to Estimated Tax.
No sure way to avoid an audit
Well, here we go again, these days everyone is talking about audits. I normally try not to join into what everyone is doing but, Some things need to be Pointed out.
First and foremost, there is no sure fire formula or guide that dictates by “doing this you’ll avoid an audit.” At best you can do is lower the possibility and having the records to substantiate your return. Meaning, have the records to back up the numbers.
The IRS conducts random audits to serve as benchmarks for its examinations. The best things you can do are file on time and pay what you owe. When it comes down to it, punctuality and accuracy are the only things the IRS really wants.
Yet for those returns that aren’t pick randomly, there is a system of IRS software called the Discriminant Inventory Function System that analyzes tax returns for oddities and discrepancies. This secret software the IRS uses, is based on a closely guarded formula. Basically the system assigns each return a score that determines whether or not the IRS will audit you.
Here are some common “red flags“:
- significant income increase or decrease
- significant deduction-to-income ratio — say, $40,000 in deductions on a $50,000 income
- business deductions consisting of fancy dinners and pricy trips to the Moulin Rouge
- home-office deductions
- low tip income for workers who traditionally make a lot of money from tips
- income exceeding significant benchmarks, such as $100,000 and $1,000,000
- self-employment
- computational mistakes and typos
- incorrect Social Security number
- incorrect reporting of income, deductions, and the like.
- late filing without applying for an extension with Form 4868
- not paying your full tax liability without applying for an installment agreement with Form 9465
Obviously, you can’t avoid an income change if you get a better-paying job. If you’re self-employed, you’re self-employed you’re not going to change that. However, you can still do some things to decrease the likelihood you will be targeted for examination:
- Keep Good Records – in the grand scheme of things, this is easy
- Explain Yourself – include the receipts, a written explanation and any other appropriate documentation with your return
- Don’t go overboard with your deductions – especially if you’re self-employed. Also, don’t estimate your deductions — use exact amounts based on receipts.
- Beware of Tax Software - Tax software is great for returns at the simpler end of the range. But, when you start getting into deductions and complex sources of income, it is best to verify the accuracy of your return with a tax professional.
- A sloppy return is sure to get a thorough check by the IRS, especially if the all-important numbers are illegible.
- Check and Recheck Your Return – no errors in your math, make absolutely sure all your math is correct.
You might also lessen the chance for an audit by having it prepared by a professional. I have heard from local IRS auditors that say they are more likely to pick a self-prepared return then one prepared by a reputable tax pro.
The best way to handle an audit is to simply stay prepared for one. You should keep a record for every line item on a tax return.
The government (IRS) isn’t kidding. It wants its revenue, and if you can’t justify a tax break, it’s not likely that you’re going to be able to keep it.
What to Do If You Are Missing a W-2
What to Do If You Are Missing a W-2
Okay I can’t take credit for below in red, but figured it needed to be out for all to see. This is IRS TT-2009-28. Word for word. I am putting it here because not everyone will use the IRS for info.
I could have just wrote this little bit but did the copy paste so readers wouldn’t have to go to IRS site.
“taxguys” first book giveaway,
Win a copy of Kay Bells The Truth About Paying Fewer Taxes.
I’ll be posting my review and contest entry info on February 28th.
Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
ü Employer’s name, address, city, and state, including zip code;
ü Your name, address, city and state, including zip code, and Social Security number; and
ü An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
ü Form 4852, Substitute for Form W-2, Wage and Tax Statement (PDF 29K)
ü Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
ü Instructions for Form 1040X (PDF 43K)
If you find you need to use 4852 please read the instructions carefully or
have your tax preparer do this for you.
Guest Post Gina L. Gwozdz, CPA
Mistakes Made When Choosing A Paid Tax Preparer
This is another addition to the series “Mistakes made when choosing a paid tax preparer”.
I regularly review the prior tax return of a new client that I receive. From reviewing these tax returns it is obvious to me that the most common mistake taxpayers make when selecting a tax preparer is failing to determine the qualifications of the preparer. I have seen several errors on prior year returns that appear to be due to the tax preparer’s lack of knowledge with the tax laws and/or lack of knowledge regarding how to complete a form or what attachments need to be made or how to construct the attachments. The sad part is that most of these clients never had the slightest idea that their tax return may have been prepared incorrectly. Every taxpayer always assumes their return is easy and just like everyone else’s.
When I bring a taxpayer’s attention to the fact that their prior year return contains errors they are usually shocked. I asked them what the preparer told them when they reviewed the return and the answer is always the same, “My prior preparer never reviewed my return with me. They just told me where to sign.”
When I ask why they selected the person to be their tax preparer, the answers are usually:
- They were the cheapest preparer they could find (and since their return is easy it’s appropriate to pay the least amount possible to have their return prepared).
- A friend/relative recommended them or they are a friend or relative (because this qualifies them to be a good preparer).
- Someone (either a friend/relative or the tax preparer) told them that they could save them a lot of money.
- They were the only preparer who would prepare their return because they waited until the last minute to try and find someone.
Thus, I have determined the biggest mistakes taxpayers make when choosing a preparer includes the following:
- They do not even try to find out the credentials of the person who will be preparing their return.
- They do not interview the preparer prior to selecting them to determine if they are familiar with the type of items on their return.
- They are too focused on the price of the return instead of the quality of return they will be receiving.
- They are too focused on the amount of their refund (or amount that they may owe) instead of on details of their return to see if it was prepared properly.
- They wait too long to find a tax preparer.
Thanks Gina. For more from Gina please visit her blog (Tax Tips Blog) http://glgcpa.com/blog
Again, I want to invite any and all guest post on this subject. I want to hear from all bloggers or just readers with their own input. Let’s see what you see I am missing. If you have some words of wisdom on this subject please let us share it with everyone, if it is something that has already been covered, so what, I am looking for others to tell what they know or have learned about finding a paid preparer. Repetition drives the point home.
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