If You Get an IRS Notice, Here’s What to Do

Each year the IRS mails millions of notices and letters to taxpayers. If you receive a notice from the IRS, here is what you should do:

• Don’t Ignore It. You can respond to most IRS notices quickly and easily. It is important that you reply right away.

• Focus on the Issue. IRS notices usually deal with a specific issue about your tax return or tax account. Understanding the reason for your notice is important before you can comply.

• Follow Instructions. Read the notice carefully. It will tell you if you need to take any action to resolve the matter. You should follow the instructions.

• Correction Notice. If it says that the IRS corrected your tax return, you should review the information provided and compare it to your tax return.

  If you agree, you don’t need to reply unless a payment is due.

  If you don’t agree, it’s important that you respond to the IRS. Write a letter that explains why you don’t agree. Make sure to include information and any documents you want the IRS to consider. Include the bottom tear-off portion of the notice with your letter. Mail your reply to the IRS at the address shown in the lower left part of the notice. Allow at least 30 days for a response from the IRS.

• Premium Tax Credit. The IRS may send you a letter asking you to clarify or verify your premium tax credit information. The letter may ask for a copy of your Form 1095-A, Health Insurance Marketplace Statement. You should follow the instructions on the letter that you receive. This will help the IRS verify information and issue the appropriate refund.

• No Need to Visit IRS. You can handle most notices without calling or visiting the IRS. If you do have questions, call the phone number in the upper right corner of the notice. You should have a copy of your tax return and the notice with you when you call.

• Keep the Notice. Keep a copy of the notice you get from the IRS with your tax records.

Watch Out for Scams. Don’t fall for phone and phishing email scams that use the IRS as a lure. The IRS first contacts people about unpaid taxes by mail – not by phone. The IRS does not initiate contact with taxpayers by email, text or social media.

If you have received a letter in the mail from the IRS and you have questions, please feel free to contact our office. We would be glad to help you get your taxes sorted out.

Source: IRS

 

Top 10 Tips for Deducting Losses from a Disaster

To mark National Hurricane Preparedness Week, the IRS wants you to know it stands ready to help. If you suffer damage to your home or personal property, you may be able to deduct the losses you incur on your federal income tax return. Here are 10 tips you should know about deducting casualty losses:

1.    Casualty loss.  You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.

2.    Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.

3.    Covered by insurance.  If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.

4.    When to deduct.  As a general rule, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year’s return may result in a lower tax for that year, often producing a refund.

5.    Amount of loss.  You figure the amount of your loss using the following steps:

• Determine your adjusted basis in the property before the casualty. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way. For more see Publication 551, Basis of Assets.
• Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property’s FMV immediately before and immediately after the casualty.

• Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.

6.    $100 rule.  After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.

7.    10 percent rule.  You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.

8.    Future income.  Do not consider the loss of future profits or income due to the casualty as you figure your loss.                         

9.    Form 4684.  Complete Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule A, Itemized Deductions.

10.    Business or income property.  Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.

If you have any questions, please feel free to contact our office.

Now is the time to check your 2015 tax payments

If you got a big tax refund or owed the IRS a lot of money when you filed your 2014 tax return, it may be time to adjust your income tax withholding.

Many people like to receive a refund from the IRS, thinking of it as a form of forced saving. If you’re of this opinion, that’s fine. But too big a refund means you’re wasting your money, giving an interest-free loan to the government.

On the other side, if you underpay your taxes by more than $1,000 and don’t meet certain exceptions, you could be hit with a penalty.

Adjusting your withholding is as simple as filing a new Form W-4 with your employer. The form comes with a worksheet to figure out how many allowances you should claim. Or you can increase withholding by specifying an extra dollar amount to be withheld from every paycheck.

When reviewing your 2015 tax payments, keep a couple of general rules in mind. Generally, you must pay (through withholding or quarterly estimated payments) at least 100% of last year’s tax liability (110% if your prior year’s adjusted gross income is over $150,000), or at least 90% of what you’ll owe for this year.

However you do it, you should adjust your withholding to match the taxes you expect to owe. If you need assistance figuring out your 2015 tax payments, contact our office.

What to Do if You Haven’t Filed a 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 come see us. 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 an additional 60 to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply. Generally taxpayers will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.
• 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. Taxpayers who owe $25,000 or less in combined tax, penalties and interest can apply for and receive immediate notification of approval through an IRS web-based application. Balances over $25,000 require taxpayers to complete a financial statement to determine the monthly payment amount for an installment plan.When it comes to paying 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.
• You can also pay your Federal taxes using a major credit card or debit card. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee.
• A user fee will also be charged if the installment agreement is approved. The fee, normally $120, 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 Happens If You Don’t File a 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.

If you haven’t filed a tax return yet, please contact the office for assistance.

Determine if You Should File an Amended Tax Return After Receiving a Corrected Form 1095-A

If you enrolled in qualifying Marketplace health coverage, you have probably filed a tax return based on a Form 1095-A that you received from the Marketplace. Your Marketplace may have subsequently told you that your original Form 1095-A contained an error, and sent a corrected Form 1095-A,

You do not need to file an amended return based on your corrected Form 1095-A.  This is true even if additional taxes would be owed based on the new information.  Nonetheless, you may choose to file an amended return.  Comparing the forms can help you determine whether you are likely to benefit from filing an amended tax return.

Specifically, you are likely to receive a larger refund or owe a smaller tax payment using the corrected Form 1095-A if the two Forms 1095-A generally show the same information but any one of the five scenarios below is true on the corrected form.

1.    Second Lowest Cost Silver Plan Premium is Larger: The monthly premium amounts of the second lowest cost silver plan, shown in Part III, column B, lines 21-32, are greater on the corrected form than on the original form.

2.    Monthly Premium Amounts are Larger: The monthly premium amounts of the plan in which you enrolled, shown in Part III, column A, lines 21-32, are greater on the corrected form than on the original form.

3.    Advance Payment of the Premium Tax Credit Amounts are Lower: The monthly amounts of advance payment of the premium tax credit shown in Part III, column C, lines 21-32 are smaller on the corrected form than on the original form.

4.    More Months of Coverage: Your corrected Form 1095-A lists more months of coverage and your situation meets all the following conditions:

• The corrected form shows more months of coverage than the original form. This means that the corrected form shows positive values in more of the rows under Part III than the original form.
• The values are the same on the corrected form for the months that the original form showed coverage.
• On your original tax return, you claimed a net premium tax credit, meaning you entered a value on line 26 of the Form 8962 you filed.

5.    Fewer Months of Coverage: Your corrected From 1095-A lists fewer months of coverage and your situation meets all the following conditions:

• The corrected form shows fewer months of coverage than the original form. This means that the corrected form shows positive values in fewer of the rows under Part III than the original form.
• The values are the same on the original form for the months that the corrected form shows coverage.
• On your original tax return, you reported owing a repayment of excess APTC, meaning you entered a value on line 29 of the Form 8962 you filed.

If there were multiple differences between your original and the corrected forms or you are not sure if you would benefit from amending, you may want to consult with your tax preparer.

If you have any questions about your personal or business taxes, please feel free to contact our office.

Source: IRS

Spring Cleaning Tips for Tax Paperwork

It is spring cleaning time, and that includes your tax paperwork. Here are some recordkeeping guidelines that will help you keep important papers and minimize clutter.

Income tax returns. These should be kept indefinitely. You would be amazed how many times the IRS will “lose” a tax return, and this is your only way to prove original filing. You should also keep the various back-up documents associated with the return, such as W-2 forms, mortgage interest statements, year-end brokerage statements, interest/dividend income statements, and so on.

Supporting documents. These are items like cancelled checks, receipts, expense and travel diaries. With respect to retaining these items: three years minimum, five years is better, and seven years is best. How long you keep these records depends on your storage area and audit potential.

Stock/bond/mutual fund purchase confirmations. These are documents that you need to retain during the time that you own the stock or mutual fund. They can be destroyed 3/5/7 years after the date of the sale of these assets. While many brokers report your fund purchase price, other records are still unavailable to them, so they cannot report your cost basis. It is ultimately up to you to prove your cost of these purchases.

Real property escrow/title statements. These are the documents that you receive when you purchase property. They are provided to you at your property closing by your title agent, escrow agent, or attorney. These are also documents that you need to retain during the time that you own the property in order to prove your purchase price at the time that you sell the property. The ultimate purging of these documents also follows the 3/5/7 year provisions after the date of the sale.

When you finally decide to get rid of those old documents, do so carefully. Many documents will carry your social security number, bank/brokerage account number, and other bits of information that could lead to theft of your identity. Make sure that any documents that you get rid of are properly shredded or otherwise completely destroyed.

If you have any questions, please feel free to contact our office. We would be glad to help you get your documents in order.