When it comes to filing a federal tax return, many people discover that they either get a larger refund or owe more tax than they expected. But this type of tax surprise doesn’t have to happen to you. One way to prevent it is to change the amount of tax withheld from your wages. You can also change the amount of estimated tax you pay. Here are some tips to help you bring the amount of tax that you pay in during the year closer to what you’ll actually owe:
• New Job. When you start a new job, you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use the form to figure the amount of federal income tax to withhold from your pay. Use the IRS Withholding Calculator on IRS.gov to help you fill out the form. This tool is easy to use and it’s available 24/7.
• Estimated Tax. If you get income that’s not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, dividends or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay it four times a year. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to figure the tax.
• Life Events. Make sure you change your Form W-4 or change the amount of estimated tax you pay when certain life events take place. A change in your marital status, the birth of a child or buying a new home can change the amount of taxes you owe. You can usually submit a new Form W–4 anytime.
• Changes in Circumstances. If you receive advance payment of the premium tax credit in 2014 it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.
For more see Publication 505, Tax Withholding and Estimated Tax. You can get it on IRS.gov, or call 800-TAX-FORM (800-829-3676) to get it by mail.
Additional IRS Resources:
IRS YouTube Videos:
IRS Podcasts:
The IRS recently announced that taxpayers could now make free one time federal tax payments using Direct Pay. There are no fees and no complicated registration requirements to use this service. It can be used for balances due or estimated tax payments. This promises to be an excellent alternative to the time consuming and sometimes complicated registration process for making payments using EFTPS.
We typically recommend that clients allow Tax On Wheels, LLC to set up an automatic draft from your checking account when we transmit the return to the IRS. But this is not always a viable option for taxpayers still trying to make arrangements for paying over the funds to the IRS. Now you can pay when it is most convenient for you and your pocketbook.
This is a nice little tool. Who says the IRS is not user friendly?
If you find you owe tax after completing your federal tax return but can’t pay it all when you file, the IRS wants you to know your options.
Here are four tips that can help you lower the amount of interest and penalties when you don’t pay the full amount on time.
1. File on time and pay as much as you can. Filing on time ensures that you will avoid the late filing penalty. Paying as much as you can reduces the late payment penalty and interest charges. For electronic payment options, see IRS.gov. If you pay by check, make it payable to the United States Treasury and include it with your return.
2. Consider getting a loan or paying by credit card. The interest and fees charged by a bank or credit card company may be lower than IRS interest and penalties. For credit card options, see IRS.gov.
3. Request a payment agreement. You do not need to wait for IRS to send you a bill before requesting a payment plan. You can:
Request, with your tax return. Find out about payment agreement user fees at IRS.gov or on Form 9465.
4. Don’t ignore a tax bill. If you get a bill from the IRS, contact them right away to talk about payment options. The IRS may take collection action if you ignore the bill, which will only make things worse.
In short, it is always best to file on time, pay as much as you can by the tax deadline and pay the balance as soon as you can. For more information on the IRS collection process contact Tax On Wheels, LLC at 803 732-4288.
If you cannot pay the full amount of taxes you owe, don’t panic. You should still file your return and pay as much as you can by the April 17 deadline to avoid penalties and interest. You should also contact the IRS to ask about payment options. Here are three alternative payment options you may want to consider and a tip on penalty relief under the IRS Fresh Start Initiative:
1. Pay by credit or debit card You can use all major cards (American Express, Discover, MasterCard or Visa) to pay your federal taxes. For information on paying your taxes electronically, including by credit or debit card, go to www.irs.gov/e-pay or see the list of service providers below. There is no IRS fee for credit or debit card payments. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95. Do not add the convenience fee or flat fee to your tax payment.
The processing companies are:
WorldPay US, Inc.:
To pay by credit or debit card: 888-9PAY-TAX (888-972-9829), www.payUSAtax.com
Official Payments Corporation:
To pay by credit or debit card: 888-UPAY-TAX (888-872-9829), www.officialpayments.com/fed
Link2Gov Corporation:
To pay by credit or debit card: 888-PAY-1040 (888-729-1040), www.pay1040.com
Also, our tax software provider, Drake Software, offers a tax payment service for federal and state tax payments located at www.1040paytax.com. Be sure to compare the services and prices offered at the Drake Payment Center to ensure you get the best value.
2. Additional time to pay Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at www.IRS.gov or by calling 800-829-1040. Taxpayers who request and are granted an additional 60 to 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time. There is no fee for this short extension of time to pay.
3. Penalty relief To assist those most in need, a six-month grace period on the late-payment penalty is available to certain wage earners and self-employed individuals. An approved request for a six-month extension of time to pay will result in relief from the late-payment penalty for tax year 2011 if:
To find out if you are eligible and to apply for the extension and penalty relief, complete and mail Form 1127-A, Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship.
4. Installment agreement You can apply for an IRS installment agreement using the Online Payment Agreement (OPA) application on IRS.gov. This web-based application allows taxpayers who owe $50,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval. You can also request an installment agreement before your current tax liabilities are actually assessed by using OPA. The OPA option provides you with a simple and convenient way to establish an installment agreement, eliminates the need for personal interaction with IRS and reduces paper processing. You may also complete and submit a Form 9465, or Form 9465-FS, Installment Agreement Request, make your request in writing, or call 800-829-1040. For balances of more than $50,000, you are required to complete a financial statement to determine the monthly payment amount for an installment plan. You may be able to avoid the filing of a notice of federal tax lien by setting up a direct debit installment payment plan. For more complete information see Tax Topic 202, Tax Payment Options and the Fresh Start page on www.IRS.gov.
For more information about filing and paying your taxes, visit www.IRS.gov and choose 1040 Central or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. You can download forms and publications at www.irs.gov or request a free copy by calling 800-TAX-FORM (800-829-3676).
Please call Tax On Wheels, LLC at 803 732-4288 if we can assist you with this or any other tax issue.
If you need to make a payment with your tax return this year, the IRS wants you to know about its payment options. Here are 10 important facts to help you make your tax payment correctly.
1. Never send cash!
2. If you file electronically, you can file and pay in a single step by authorizing an electronic funds withdrawal via tax preparation software or a tax professional.
3. Whether you file a paper return or electronically, you can pay by phone or online using a credit or debit card.
4. Electronic payment options provide an alternative to checks or money orders. You can pay taxes or user fees 24 hours a day, seven days a week. Visit the IRS website at www.irs.gov and search e-pay, or refer to Publication 3611, Electronic Payments for more details.
5. If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction on Form 1040, Schedule A, Itemized Deductions. The deduction is subject to the 2 percent limit.
6. If you file on paper, you can enclose your payment with your return but do not staple it to the form.
7. If you pay by check or money order, make sure it is payable to the “United States Treasury.”
8. Always provide on the front of your check or money order your correct name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number.
9. Complete and include Form 1040-V, Payment Voucher, when mailing your payment to the IRS. Double-check the IRS mailing address. This will help the IRS process your payment accurately and efficiently.
10. For more information, call 800-829-4477 and select TeleTax Topic 158, Ensuring Proper Credit of Payments. You can also find out more in Publication 17, Your Federal Income Tax and Form 1040-V, both available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Please contact Tax On Wheels, LLC at 803 732-4288 if you need assistance with this or any other tax issue.
If you owe tax with your federal tax return, but can’t afford to pay it all when you file, the IRS wants you to know your options and help you keep interest and penalties to a minimum.
Here are five tips:
1. File your return on time and pay as much as you can with the return. These steps will eliminate the late filing penalty, reduce the late payment penalty and cut down on interest charges. For electronic and credit card options for paying see IRS.gov. You may also mail a check payable to the United States Treasury
2. Consider obtaining a loan or paying by credit card. The interest rate and fees charged by a bank or credit card company may be lower than interest and penalties imposed by the Internal Revenue Code.
3. Request an installment payment agreement. You do not need to wait for IRS to send you a bill before requesting a payment agreement. Options for requesting an agreement include:
• Using the Online Payment Agreement application and
• Completing and submitting IRS Form 9465-FS, Installment Agreement Request, with your return
IRS charges a user fee to set up your payment agreement. See www.irs.gov or the installment agreement request form for fee amounts.
4. Request an extension of time to pay. For tax year 2011, qualifying individuals may request an extension of time to pay and have the late payment penalty waived as part of the IRS Fresh Start Initiative. To see if you qualify visit www.irs.gov and get form 1127-A, Application for Extension of Time for Payment. But hurry, your application must be filed by April 17, 2012.
5. If you receive a bill from the IRS, please contact us immediately to discuss these and other payment options. Ignoring the bill will only compound your problem and could lead to IRS collection action.
If you can’t pay in full and on time, the key to minimizing your penalty and interest charges is to pay as much as possible by the tax deadline and the balance as soon as you can.
Visit IRS Videos.gov/OweTaxes for more information or call Tax On Wheels, LLC at 803 732-4288 for assistance with your tax issues.
The Internal Revenue Service has expanded its “Fresh Start” initiative to help struggling taxpayers who owe taxes. The following four tips explain the expanded relief for taxpayers.
Penalty relief Part of the initiative relieves some unemployed taxpayers from failure-to-pay penalties. Penalties are one of the biggest factors a financially distressed taxpayer faces on a tax bill.The Fresh Start Penalty Relief Initiative gives eligible taxpayers a six-month extension to fully pay 2011 taxes. Interest still applies on the 2011 taxes from April 15, 2012 until the tax is paid, but you won’t face failure-to-pay penalties if you pay your tax, interest and any other penalties in full by Oct. 15, 2012.
1. The penalty relief is available to two categories of taxpayers:
* Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to this year’s April 17 tax deadline.
* Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.
To qualify for this penalty relief, your adjusted gross income must not exceed $200,000 if married filing jointly or $100,000 if your filing status is single, married filing separately, head of household, or qualifying widower. Your 2011 balance due can not exceed $50,000.
Taxpayers who qualify need to complete a new Form 1127A to request the 2011 penalty relief. The new form is available on www.irs.gov or by calling 1-800-829-3676 (TAX FORM).
2. Installment agreements An installment agreement is a payment option for those who cannot pay their entire tax bill by the due date. The Fresh Start provisions give more taxpayers the ability to use streamlined installment agreements to catch up on back taxes and also more time to pay.
The new threshold for requesting an installment agreement has been raised from $25,000 to $50,000. This option requires limited financial information, meaning far less burden to the taxpayer. The maximum term for streamlined installment agreements has been raised to six years from the current five-year maximum.
If your debt is more than $50,000, you’ll still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). You also can pay your balance down to $50,000 or less to qualify for this payment option.
With an installment agreement, you’ll pay less in penalties, but interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, you must agree to monthly direct debit payments.
You can set up an installment agreement with the IRS through the On-line Payment Agreement (OPA) page at www.irs.gov
3. Offer in Compromise Under the first round of Fresh Start in 2011, the IRS expanded the Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An Offer in Compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.
The IRS recognizes many taxpayers are still struggling to pay their bills so the agency has been working on more common-sense changes to the OIC program to more closely reflect real-world situations.
Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.
4. More information A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts,” is available on the IRS website, www.irs.gov.
The IRS website has a variety of other online resources available to help taxpayers meet their payment obligations. See also Offer in Compromise and The What If’s of an Economic Downturn.
Please feel free to contact Tax On Wheels, LLC at 803 732-4288 if we can assist you with this or any other tax issue.
http://youtu.be/cny6o-ahhRU
IRS e-file: It’s safe. It’s easy. It’s time. Most taxpayers—nearly 80 percent– file electronically. If you haven’t tried it, now is the time! The IRS has processed more than 1 billion individual tax returns safely and securely since the nationwide debut of electronic filing in 1990. In fact, last year, 112 million people – 78 percent of all individual taxpayers – used IRS e-file to electronically transmit their tax returns to the IRS. The number of people who use a paper tax return or who mail a tax return dwindles each year – and for good reason .
1. Safety and security. E-file providers must meet strict guidelines and provide the best in encryption technology. You receive an acknowledgement within 48 hours that the IRS received your return. If the IRS rejects the return, the receipt will explain why so you can quickly correct and resubmit.
2. Faster refunds. An e-filed tax return normally means a fast refund. If you combine e-file and direct deposit the IRS can typically issue your refund in as few as 10 days. About three of four taxpayers receive a refund and last year the average refund was approximately $2,900.
3. More payment options. If you e-file you can file early and set an automatic payment withdrawal date for any date on or before the April due date. You may also pay by paper check or even by credit card.
4. It’s easy. You can e-file through your tax preparer, use commercial tax preparation software or through Free File, the free tax preparation and e-filing service available exclusively at www.irs.gov.
Starting in January 2012, any paid preparer or firm that reasonably anticipates preparing and filing 11 or more Form 1040 series returns, Form 1041 returns or a combination of both generally must use IRS e-file. These tax return preparers must be authorized IRS e-file providers so they can transmit tax returns electronically.
Many states, including South Carolina, seem to be searching for ways to increase revenues. One way to do that is to become more aggressive in enforcing the often ignored Use Tax.
A use tax is the government’s way of saying you still have to pay sales taxes even if you bought goods out of state. If you personally ventured across the state line and bought goods in another state and paid that state’s sales taxes that is generally the end of the matter. You may owe a use tax but you are generally given credit for any sales taxes paid to the other state which reduces your Use Tax liability. However, if you purchased goods online or over the telephone you most likely did not pay any sales tax on the purchase and the Use Tax is now a factor in preparing your state tax return.
The South Carolina Use Tax has been around since the early fifties. But just like highway speed limits and jay walking laws, this law was frequently ignored, by both the tax payers and their governments. The line for declaring Use Tax liability has been on the Form SC1040 for many years now. In previous years everyone was pretty much free to ignore this line item if they so chose. The assumption was that if you put nothing on that line then you had no use tax liability. This all seems to be changing now.
This year each South Carolina taxpayer will have to affirmatively declare a use tax liability under penalty of perjury as indicated by their signature on the tax return. . If you bought goods that are subject to the use tax you will have to declare that amount and pay the corresponding use tax with your income tax return. If you did all of your shopping locally and do not owe Use Tax then you will still need to affirmatively declare that you had a zero tax liability.
So what does this mean for you? It means that you now need to keep track of all those out of state purchases, whether online or otherwise, and report those purchases on your state tax return. Your tax preparer must ask you about your purchases subject to Use Tax. You must put an entry on the form. If the number is zero then so be it. You will owe nothing. But if you thought you saved a few pennies on birthday presents for the grandkids by shopping out of state to avoid paying sales tax on those purchases then you must report this on your state tax return and pay the appropriate percentage. This will either reduce your refund or increase your balance due.
If you have questions about Sales and Use Tax issues please give us a call at 803 732-4288