Does the IRS Disagree with Your Income Figures? 7 Critical Steps to Take Next
It is one of the scariest things that can befall a taxpayer - the dreaded notice from the IRS stating you owe them more money you can’t pay. When you open up the mailbox and see the return address of the tax agency staring back at you, your heart is bound to skip a beat (or two).
Few people look forward to communicating with the IRS, but plenty of taxpayers receive these notices every year. If you do find yourself on the receiving end of such a notice, knowing what to do next could make all the difference, and possibly save your bank account. Here are seven critical steps to take if the IRS disagrees with the income (or expense) figures you have reported.
Note: If you fall behind on filing your taxes, you’re not alone and we can help. Reach out to our tax resolution firm and we’ll help you file late tax returns and negotiate with the IRS if you owe back taxes.
1. Stop panicking. Getting a letter from the IRS is enough to send your heart racing, but it is not the end of the world, and panic will not help you. Staying calm and reviewing the communication will be key, so settle your nerves and move on to the next steps.
2. Review the document carefully. The letter you received from the IRS should clearly layout where they disagree with your figures and what they used to come up with their own math. Reviewing these figures is the critical next step, and it is one you should take your time with.
3. Pull a copy of the tax return in question. The communication you received from the IRS will tell you which year's tax return is in question, so pulling a copy of that return should be your next step. Once you have the document in hand you can start to review the figures and see where the discrepancies came from.
4. Find your supporting documents. In many cases these kinds of discrepancies are caused by simple errors like transposed numbers, so compare the figures on the supporting documents to what ended up on your return. You may find, for instance, that you reported interest of $2,150 as $1,250, and the solution could be as simple as ponying up the extra tax.
5. Contact the best tax resolution firm. If you used a professional tax preparer, you might be tempted to talk to them first. That might be ok, but if you owe a large amount of back taxes, they might not be able to help. That’s where a good tax relief or tax resolution firm can help. The best tax relief firms can actually negotiate on your behalf with the IRS and find the best resolution for your tax situation, sometimes settling for less than what you owe in taxes!
6. Review the response form. If you did make a mistake on your tax return, you can simply agree to the figures the IRS reported and pay the additional tax, along with any applicable penalties and interest. If you disagree, you can respond with the supporting documents that prove your case. Either way, you will need to use the response form included with the letter, so review and complete that form carefully. We don’t suggest you do this yourself, instead, call our tax relief firm and make sure you investigate the issue in its entirety. Otherwise, you could land yourself in more trouble.
7. Follow up. It can take some time for these kinds of discrepancies to be resolved, so you will need to bring a healthy dose of patience. If you agree with the notice and choose to pay the extra tax, you can see when your check is cashed or the money is taken out of your account, documenting the situation and keeping careful records. If you disagree, you will need to wait for the IRS to respond, but make sure you don’t assume the issue is resolved unless you have documentation stating that.
If you do need to contact the IRS, keep in mind that their phone lines are extremely busy. Many people who have been through this trauma recommend calling early in the morning, right after the phone lines open, so you can get in line and get your questions answered before the lines fill up.
We NEVER suggest our clients try to contact the IRS on their own. It would be like going to court without a lawyer. The IRS is not your friend, they’re sole responsibility in these cases is to collect taxes they think they’re owed.
Hopefully, you will never be on the receiving end of a nasty letter from the IRS but it is still important to be prepared. If you do find a letter from the IRS in your mailbox, following the seven critical steps listed above could save you from further trouble.
Reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem.
Which Tax Records to Keep and For How Long. Do This And Avoid Tax Problems Later.
Whether you are expecting a nice tax refund or preparing to write a big scary check, you know that April 15 is the annual tax filing deadline. What you may not know, however, is that tax day is every day at the IRS, and the tax agency is always reviewing the information taxpayers and business owners have provided.
That means that keeping tax records is about more than just smart bookkeeping - it is an integral form of self-protection. You see, millions of Americans get letters from the IRS stating they owe back taxes or requesting more information about their tax returns.
It may be disconcerting, but the IRS has the right to request additional information months, or even years, after the return you filed has supposedly been processed and accepted. In fact, the much-feared tax agency can request additional documentation for up to three years after the annual tax deadline has come and gone.
We help people resolve their back tax problems and often settle with the IRS for less than the amount they owe, but in order to do this, we need to provide the right records. That's where having your tax records saved can be the difference between settling your tax debt or not.
As a result, it is important to retain your tax records and keep certain tax documents on hand, just in case the IRS asks for them. Here are the most common tax records and how long you should keep them around.
If you owe back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about.
Save The Tax Returns Themselves
In most cases the IRS will have up to three years to question the figures you reported on your tax return, or otherwise challenge the information you provided. You may think the tax year is over, but for the IRS the final curtain does not fall for a full 36 months.
For this reason, it is generally a good idea to keep your old tax returns for a minimum of three years. You do not necessarily have to print and retain hard copies of your tax returns - electronic documents are fine as long as you will be able to access them quickly should you need them.
If you fail to keep copies of your tax returns, you can still access them by asking the IRS for transcripts. It is best to keep your own records, and doing so will make your life a lot easier.
Pay Stubs and W2 Forms
As with the tax returns themselves, it is generally a good idea to keep your W2 forms for a minimum of three years. This will provide you with the documentation you need should the IRS find a discrepancy between the amount of income you reported to the agency and the figures your employer-provided.
It is also a good idea to retain at least your year-end pay stubs, not only to help reconcile them with the W2 forms but also for other forms of income documentation. If you are applying for a mortgage, for instance, the lender may ask to see several years worth of tax returns, pay stubs, and other income documents, and having them on hand will make the application process faster and easier.
Income and Dividend Forms
The IRS looks at all of the income you report when you complete and submit your tax returns, but the agency does not just take your word for the accuracy of those figures. Instead, the IRS uses sophisticated matching programs to compare the amount of income you reported from various sources with what they receive from third-party sources.
Those third-party sources could include your bank and credit union, your brokerage firms and mutual fund companies, and any other places that provide you with income. It is therefore a good idea to hold onto any income-related forms you receive for at least three years, and possibly longer if you run your own business or earn income from gig work or freelancing.
Once again, these income documents can do double duty, serving as a backup if the IRS questions the numbers on your tax return but also giving you the information lenders and others might need down the road. If you store these documents electronically you will not even need to worry about buying a file cabinet, so there is really no reason to not keep them around.
Filing taxes can be a stressful experience, but the difficulty does not end when you click send on your e-filed tax return. Even after that return has been filed and accepted, the IRS could still question or challenge your numbers, and that is why it is so important to retain the backup documentation until the challenge window has passed. Now that you know what to retain and for how long, you can rest a little easier when tax time rolls around.
If you do run into tax trouble or the IRS states you owe back taxes, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem.
Key Things to Look for in a Tax Relief Firm
No one wants to be on the bad side of the IRS, yet that is where millions of taxpayers find themselves each and every year. As enforcement efforts ramp up at the IRS, the number of letters and communications landing in mailboxes is continuing to increase and one of them could land in your mailbox.
If you do receive a notice from the IRS, it is important to act fast, especially if you cannot afford to pay what the IRS says you owe. You may be tempted to do nothing or ignore the situation, but every day you wait will just make an already bad situation that much worse.
The good news is you may not have to pay what the IRS says you owe! There are a number of programs designed to give taxpayers relief, in many cases allowing them to settle their tax debts for much less. But before you can enjoy that financial relief, you need to find the right partner, and here are some key things to look for.
The Right Tax Relief and IRS Negotiation Experience.
When you hire a tax relief firm, you will be hiring a team of experts, and it is important that the person who works on your case will be up to the task. It is important to look for specific areas of expertise, including former IRS agents, attorneys and others who can help you negotiate with the IRS on your behalf.
The best tax relief agencies are not necessarily huge firms; some of the best are small operators with extensive experience. But no matter what the size of the firm, the tax resolution expertise of the person working on your case is what matters the most.
Compassion and Understanding
Dealing with the IRS is not just a financial problem; it is an emotional one as well. Getting a letter from the IRS is bound to be an upsetting and unsettling experience, and working with a compassionate and caring tax relief firm can help a lot.
You should not, of course, sacrifice expertise and capability for compassion, but there is no reason you cannot have the best of both worlds. Look for someone who cares about you and your situation as you interview tax relief firms and choose the one you feel best about working with.
Recent IRS Negotiation Success Stories
The IRS is a huge agency, and the tax code is endlessly complex. That enormous complexity and ever-growing structure mean that past experience may no longer be relevant, so look for recent experience with the IRS in the form of testimonials and case studies.
Chances are if they have good “wins” under their belt, they know what they’re doing and they can get you a favorable outcome. Working with these experts can give you peace of mind and make it easier for you to resolve your tax problem.
Getting a letter from the IRS can be a scary experience, but it does not have to be the end of the world. You do not have to suffer financial devastation or go bankrupt to settle the debt you owe. Now that you know how to find a great tax relief partner, you no longer have to live in fear of your next trip to the mailbox.
Do You Owe Back Taxes? Take These Steps to Protect Yourself and Your Finances
Few things are as frightening as opening the mailbox and finding a letter from the IRS, especially when you know you owe them money. The much-feared tax agency does not contact taxpayers just to say hello and receiving communication from them is not likely to be good news.
When your heart stops pounding and you get the courage to open the letter, you get another shock - in the form of a large amount due, one you cannot possibly afford. So what do you do, and how do you react?
The steps you take next could make all the difference, and here are some immediate actions you need to complete right away.
Step #1 - Stop Panicking, Take Action
If you owe back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about.
If you think you don’t know, then you need to make a case for why you think the assessed taxes are wrong and back it up with proper documentation and proof. Sometimes, the letter you received from the IRS can be a result of a discrepancy, meaning there is a mismatch between what was reported on your return and the figures the tax agency received through other means. There could be many reasons for this discrepancy, and there could be an innocent and inexpensive explanation and resolution.
Getting a letter from the IRS is not fun, but it is not the end of the world either. Even if you owe the taxes the IRS says you do, you may be able to negotiate a lower settlement, sometimes a much lower one.
Step #2 - Find the Tax Return in Question
The communication you received from the IRS will reference a specific tax year, so it is important to find and review that return as quickly as possible. Hopefully you have retained records that include your recent tax returns, either in paper or electronic form. If not you can request a copy from the IRS or contact your tax preparer.
Once you have your tax return in hand, you can review it carefully, looking for the discrepancies in question and seeking out your own backup information. The problem could be something like a capital gain you forgot to report or a mistransposed number as you were entering your income information. Gather all the information and have it ready to bring to your appointment with the tax relief specialist.
Step #3 - Do Your Own Calculations
Now that you have your tax return and your backup documentation available, it is time to do some number crunching. This can be a long and frustrating process, so we guide our clients through this process when they work with us. The clock is ticking, and interest and penalties may continue to accumulate if you wait too long to respond.
There should be a deadline listed on the form you received from the IRS, so check it and make sure you can respond by the due date. Do not forget to allow time for mailing and delivery, even if you plan to send the documents overnight.
Step #4 - Don’t Contact The IRS Directly, Contact Our Tax Relief Firm And Get The Protection You Need
The IRS is not on your side and their primary goal is to collect the taxes they believe you owe. The IRS has a number of programs in place to lower the amount owed, but for obvious reasons, they do not like to talk about them.
By seeking the services of a qualified tax relief firm like ours, you will gain access to a world of knowledge, including insider information about programs that could save you thousands of dollars and get you back on the good side of the IRS. The sooner you call our tax relief firm the better off you will be.
Dealing with the IRS is rarely a pleasant thing to do, but ignoring a tax due notice will not make it go away. Delaying will just make a bad situation even worse, so it is important to act quickly. The good news is that tax relief firms exist for this very purpose, so you can settle your debt without sacrificing the rest of your financial life.
How to Turn Your Side Hustle Into a Massive Tax Deduction
If you took on a side hustle last year to make ends meet and earn some extra cash, you may have found an unexpected surprise when you filed your taxes. If you did not prepare carefully, you probably ended up with a big tax bill for your troubles, possibly with penalties and interest added on.
Given the unpleasant surprises of the past, you may be resigned to a life of higher taxes, all courtesy of the very side hustle you thought would help you gain financial freedom. But before you put away your driving gloves and give up on ride-sharing and grocery delivery, you might want to take a second look at your situation.
With the right planning and preparation, your side hustle could actually lower your tax bill, giving you an even bigger reason to keep driving, door dashing, and doing whatever it takes to make ends meet. Here are some key ways to make your side hustle pay off come tax time.
Note: If you fall behind on filing your taxes or owe back taxes to the IRS, you’re not alone and we can help. Reach out to our tax resolution firm and we’ll help you file late tax returns and negotiate with the IRS if you owe back taxes.
Start By Estimating What You Expect to Earn
It can be difficult to estimate how much you might earn from your side hustle, especially if the time you devote to it and the amount you make varies week to week. Even so, it is important to estimate your income, not only to plan for your deductions but to make advance tax payments as well.
If you expect to earn more than $1,000 from your side hustle, you should strongly consider making quarterly tax payments to the IRS. If you fail to pay ahead, you could end up with a tax penalty when you file, and possibly interest and other charges as well. If you end up overpaying what you owe, you will receive a refund when you file your taxes.
You can start estimating your earnings by looking at how much you made last year. To fine-tune the figure, even more, you can look at your monthly earnings to date and annualize that figure to determine how much you could earn for the entire year.
Consider a Health Savings Account
If you have a health savings account, either through your employer or purchased on your own, you may be eligible for a health savings account, and opening one could significantly reduce your taxable income, so you can keep more of your side hustle money.
In addition to the tax savings, a health savings account can help you pay for medical expenses, both expected ones, and costs that would otherwise have drained your emergency fund. Since the money, you put into an HSA is fully tax-deductible, this simple step can lower your tax bill quite a bit.
Open a Self-Employed Retirement Plan
If you have a side hustle, even on a part-time basis, you are considered self-employed, and that means you can open a retirement plan designed for self-employed individuals. The type of account you can open, and the amount you can contribute, will be dictated by the type of business structure and your earnings, but many of these retirement plans are quite generous in their contribution limits.
If your side hustle is truly a sideline and you have a full-time job with a traditional 401(k) plan, you may be eligible for a SEP-IRA, a unique form of account designed specifically for small business owners and the self-employed. If your side hustle has gone full time, you may want to look at a solo 401(k), a retirement plan that offers high contribution limits and an enormous potential for tax savings. You will need to apply for an employer identification number (EIN) to open this type of 401(k), but you can get that number free from the IRS.
Take Advantage of Your Deductions
Having a side hustle gives you a chance to tax advantage of certain deductions, and using those deductions could significantly reduce your taxable income and boost the size of your refund.
If you run a business out of your home, for instance, you may be eligible for the home office deduction, and that will entitle you to write off part of your mortgage, utilities, and other costs. You can also take a standard home-office deduction based on the square footage of your dedicated workspace and the size of your home.
In addition to those deductions, you may be able to write off things like office supplies, the cost of internet access and phone service, and automotive expenses if you use your car as part of your side hustle or full-time business. You should always check with a tax expert before claiming these deductions, as every individual situation is unique.
Side hustles are becoming more common, and that is good news for many wallets. But when tax time rolls around, those partially self-employed individuals will need to do some serious planning to keep their bills in check, including following the steps outlined above.
Life as a freelancer or gig worker can be wonderful, but it’s not uncommon to see self-employed taxpayers land in trouble with the IRS and owing back taxes.
If you do run into tax trouble, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem.
5 Things That Can Unexpectedly Raise Your Taxes
Proper tax planning is a year-round proposition. You cannot afford to wait until April to start planning your taxes and assessing your tax liability.
Knowing which factors can raise your taxes is one of the best ways to keep more money in your pocket. These five factors can unexpectedly raise your taxes owed at the end of the year.
Note: If you owe back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about.
#1 - Cashing in Your Retirement Plan
There are many reasons not to cash in your retirement plan early, but the tax penalty is one of the biggest ones. If you take the proceeds from your 401(k) plan in cash instead of rolling it over into an IRA, you will have to pay taxes on the money you withdraw. Even worse, you will be subject to a 10 percent penalty. By the time you are done, you could lose up to half your hard-earned retirement plan to taxes and penalties.
#2 - Working as a Freelancer
Working for yourself is great, but it can trigger a tax nightmare. Freelancers and other self-employed workers are subject to the self-employment tax, which represents the combined employer and employee share of the Medicare and Social Security tax. That tax hit can be substantial, especially if you plan to fail for it and set money aside.
#3 - Failing to Take Your RMD
You cannot keep retirement funds in your account indefinitely. You are required to start pulling money from your IRA and workplace retirement plans when you turn 70. If you fail to make that required minimum distribution (RMD), you could face a hefty tax penalty. The penalty for failing to take the RMD can be substantial.
#4 - Skipping Your IRA Contribution
If you are used to making an annual IRA contribution, skipping that contribution could cost you money. Before you skip your IRA contribution, take the time to run the numbers and see how the decision will affect your tax bill.
#5 - Paying Off the Mortgage
Paying off the house can be very freeing, but it can also raise your taxes. Mortgage interest is deductible if you itemize your deductions, and losing that deduction could leave you owing more to the IRS. That may not be a reason to keep a mortgage, but it can be an important consideration.
Owe Back Taxes?
If you know you’ll have outstanding tax debt and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief and sometimes settle their tax debt for a fraction of what’s owed.
Recordkeeping Tips for Freelancers and Gig Workers So You Can Avoid Getting in Tax Trouble
If you are working as a freelancer or gig worker, you are certainly not alone. Millions of men and women are earning extra income driving for ride-sharing services, designing websites for online entrepreneurs, and writing for local businesses.
Some freelancers and gig workers have even said goodbye to their traditional careers, trading the security of a steady paycheck for the freedom and flexibility of gig work and freelance clients. But whether you are freelancing full time or just for extra cash, you need to keep careful records so come tax time, you can stay out of tax trouble.
Note: If you fall behind on filing your taxes, you’re not alone and we can help. Reach out to our tax resolution firm and we’ll help you file late tax returns and negotiate with the IRS if you owe back taxes.
Set Up a Separate Bank Account
Freelancers and gig workers play many roles but they all have one thing in common, they are also business owners.
Whether or not you have incorporated your business or formed a formal business, you do operate your own business. That means you need a separate bank account to collect your earnings and pay your expenses.
If you have not already done so, you should set up a separate bank account for your freelancing income. If you do have a formal business structure and an employer identification number (EIN), you can use that information to open the account. If not, you can simply open a second account to collect your payments and take care of any business-related expenses.
Print Reports from Payment Providers
Gig workers and freelancers are paid in many different ways, from direct payments from clients to automated clearinghouse (ACH) transfers to their bank accounts. These independent workers may also receive payment through third party apps like Paypal, Stripe and Payoneer, and keeping it all straight can be a real challenge.
Luckily many of the major payment providers make it easy to find out exactly how much their members received during a given time period. If you want to see where you stand, and how much tax you might owe, sign on and print out a payment report from every provider you receive income from.
You can fill out those reports with your own carefully kept records, including documentation of direct client payments and bank transfers. If you are unsure how much you have received via ACH, you can check with your bank or request a written report.
Signing up for a bookkeeping service or bookkeeping software can also help keep track of all your income and expenses.
Maintain Contact Information for Everyone You Have Worked For
During the course of a single year, freelancers and gig workers may work for dozens of individuals and companies, and they may receive payments from just as many sources. In a perfect world, everyone who hires those freelancers and gig workers would maintain their own records and send out 1099s for tax purposes, but that is far from guaranteed.
If you want to avoid unpleasant entanglements with the IRS, you need to keep your own records and check off each 1099 as it comes in. If you earned income from a client and do not receive a 1099, it is your responsibility to follow up and get the proper paperwork, so make your life easier and keep contact information from everyone you worked for, even if they were only a one-time client.
Keep a Running Tally with a Spreadsheet
It can be hard to track your income from freelance jobs and gig work, but a spreadsheet will make it easier. If you want to avoid underreporting your income and the tax penalties that could bring, set up a spreadsheet and record every dollar you earn from your freelancing and gig work efforts.
Keeping a running tally of your freelance and gig work income serves a number of different purposes. For one thing, it will help you determine the amount of your required quarterly income tax payments, so you do not overpay or underpay what you owe. Tallying your income as you go can also help you see how you are doing, making it easier to ramp up your freelancing and gig work efforts as you go.
Measure, Photograph and Document Your Home Office
As a freelancer or gig worker, you may be eligible for some generous income tax deductions, including a write-off for your home office. If you operate your freelancing business out of your home or find gig clients there, you may be able to deduct part of your utility bills, rent or mortgage and other applicable expenses.
Not just any space will do if you want to take the home office deduction, and proper documentation could be the difference between a valid deduction and a disallowed one. You must use your home office solely for your business, and it is important to keep careful records to avoid problems with the IRS.
That means measuring the space your home office occupies, so you can compare it to the total square footage of your home. It also means photographing the space, so you can show those images to the IRS if they question the deduction.
Scan Receipts to Make Tax Deductions Easier
You may also be eligible for additional tax deductions, including write-offs for office supplies, internet access and the like. But you will need to back up those deductions if the IRS comes calling, so make sure you have all those receipts on hand.
A shoebox full of paper receipts will not do, so make sure you scan or photograph those documents and keep them in a safe place. That could mean setting up a folder on your hard drive (with a backup plan in place), uploading the images to the cloud or a combination approach designed to safeguard records of your business-related purchases.
Life as a freelancer or gig worker can be wonderful, but keeping proper records is essential. From making tax planning easier and less stressful to saving you money, there are many advantages to keeping careful records.
If you do run into tax trouble, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem.
9 Common Mistakes First Time Tax Filers Make That Can Land You In Tax Trouble
Being an adult has its perks, from being able to rent a car and book a hotel room to the chance to earn a living and rent an apartment. But life as an adult also comes with some challenges, including the burden of filing and paying taxes.
If this year is the first time you will be filing a tax return, it is important to plan ahead. Mistakes are common among first-time filers, and those blunders could delay a much-anticipated refund or even trigger an audit from the IRS.
Here are 9 of the mistakes first-time filers are likely to make - and how you can avoid them.
Note: If you or someone you know owes back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about.
1. Forgetting to file
When filing taxes is new, it is easy to forget to do it. Forgetting to file is a big risk for first-time filers, one that could have long-lasting implications for your adult life.
2. Not reporting all your income
As a first-time filer, it is easy to forget to report all your income, especially if you work a side hustle or participate in the gig economy, Failing to report all your income is a big no-no, and this mistake could trigger a visit from the IRS.
3. Not tracking the cost basis of your investments
If you invest in stocks, bonds, or mutual funds, you may owe capital gains tax when you sell, so it is important to track the cost basis as you go along. If you fail to track the cost basis, you could end up overpaying taxes on any future sales.
4. Paying for a refund anticipation loan
As a first-time filer, you are probably anxious for your refund, but paying to get it could be a big mistake. Unless you are in dire need, it is better to wait 7-10 days for your e-filed return to be processed and your direct deposit to land in your bank account.
5. Choosing the wrong filing status
If you choose the wrong filing status, your return could be delayed, or even rejected outright.
6. Not asking your parents if they are claiming you on their tax return.
If your parents are still providing support for you, they may be able to claim you as a dependent when they file their taxes. If you incorrectly claim yourself as a dependent in this situation, you could be in trouble with the IRS. Even more importantly, you could land your parents in hot water as well.
7. Failing to claim all your deductions
From student loan payments to mortgage interest, the IRS provides a wealth of deductions that can reduce taxes for first-time filers. Failing to claim those available deductions is like leaving money on the table.
8. Waiting until the last minute
Many first-time filers assume that their returns will be simple and that they can wait until the last minute to file. If you wait until April 15, you will be at the mercy of everything from closed post offices to a failed internet connection, so start early and get this chore out of the way as soon as possible.
9. Not planning for next year
When you are neck-deep in tax paperwork, it is hard to see ahead, but failing to plan for future taxes is a big first-time filer mistake. Now that your return has been filed, do some homework on additional tax deductions, including those for 401(k) and IRA contributions.
The April 15 tax filing deadline will be here before you know it, and when it is over you will have officially become a taxpayer. If you want your first foray into taxpayer status to be a successful one, avoiding the 9 mistakes listed above is a good place to start.
If you know you’ll have outstanding tax debt and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief and sometimes settle their tax debt for a fraction of what’s owed.
Lucky Day at the Casino? Don't Forget About the IRS
Whether you gamble all the time or only once in a blue moon, you are filled with hope and excitement every time you walk through those casino doors. If you have been gambling for even a little while, you already know that Lady Luck can be a fickle partner. Sometimes the gods of the casino smile upon you, and other times they turn their back. So, when you finally hit the jackpot, you are overjoyed and brimming with excitement…
At least until you consider the tax consequences of your good fortune.
Every time you walk through the doors of the casino, Uncle Sam is peering over your shoulder, and the IRS will be waiting with its hand out when good fortune finally smiles on you.
So, as you celebrate your big win, do not forget about your taxes; if you do, the IRS is sure to come calling. If you have any tax issues or find yourself owing a large amount in back taxes, reach out to our tax resolution firm and we’ll help you navigate any obstacles.
Ask About a W2-G
One of the first things you need to know about winning big at the casino is that the IRS will receive notice of how much you won. If you try to fudge the numbers or not report the win at all, chances are you will soon be on the wrong end of a tax bill.
It is important to report all of your gambling winnings, even smaller jackpots that may not warrant a W2-G, the form on which those monies are recorded. And if you do win a substantial jackpot, ask the casino workers about how and when the tax forms will be issued.
Understand Withholding
When you have a lucky day at the casino, it is easy to blow your winnings, especially if you have never been so lucky before. But before you spend your last dollar, you might want to keep some in reserve for when tax time rolls around. If you fail to keep that money available, you could be in for an unpleasant surprise, and a big tax bill, when you file.
Casinos know that their customers may have trouble paying taxes on their winnings, and that is why many of them will automatically withhold a portion of the jackpot. If you do win a substantial jackpot, make sure you understand whether, and how, this withholding will take place.
If you are concerned about having the money to pay the taxes due, you may be able to ask the casino to do the withholding for you. Not all casinos will be willing to do this, but it never hurts to ask.
Track Your Losses
The fact that you have to pay taxes on your gambling winnings may seem unfair and arbitrary, but the IRS is not entirely heartless. You may be able to write off some of the money you lost in the pursuit of your latest jackpot, but only if you can back up those numbers with hard data.
Tracking your losses is never a fun thing to do, especially if you are a regular casino visitor. Even so, it is important to keep track, and many casinos will do the work for you.
If you carry a casino loyalty card, you may be able to log on or request a report showing how much you spent, and how much you won, while your card was in use. This is not a perfect solution, but it can be a good first step if you plan to write off your losses in hopes of reducing your final tax bill.
Having a lucky day at the casino feels good no matter who you are, as does leaving the casino with a stack of cash and a big jackpot to your name.
But the next time Lady Luck smiles on you, make sure you leave a little for Uncle Sam.
If you find yourself behind on your taxes and owe more than $10,000, contact our firm. We’ll schedule a no-obligation confidential consultation to explain your options to potentially settle your tax debt for less than what you owe.
Made a Mistake On Your Tax Return? Here’s What To Do.
Tax returns can be complicated and tricky to understand. Even for a professional, it can be surprisingly difficult to get every number and detail right.
Often, you only notice the mistakes when you take a casual look at your return days after you submit it online or drop it in the mailbox. Or worse, the IRS sends you a letter telling you something is off.
So, is there anything that you can do after your return is in?
Actually, there's a lot that you can do. But if you don’t know where to start, it’s best to leave it to a professional. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about. We help people who owe back taxes or have back tax debt. Call us today for a free consultation.
3 Major Types Of Mistakes
There are many red flags the IRS looks for on each tax return, but here are 3 common ones taxpayers make.
1: Not reporting all your income. No matter how much or little you make, report everything. In some way or another, unless you run a strict cash business (another red flag), all of your income is reported to the IRS. W2, 1099 and other forms you receive are duplicated and sent to the IRS. If your reported income doesn't match theirs, that's a red flag.
2: Overstating business expenses. Depending on the type of job you have, there can be many legitimate expenses that your employer doesn't reimburse you for. If you’re a business, you might be tempted to write off just a little extra. These might be genuine deductions. But don't try to deduct something that's not on the approved list and don't claim deductions way outside the norm. Check with your tax professional and stay up to date with tax laws so you’re not padding your tax return with write-offs.
3: Math errors. Whether you file electronically or still file paper forms, your information gets entered into a computer. And one thing computers are very good at is doing math. If things don’t add up, or there was an honest mistake in inputting the information, it can raise a red flag. A math error won't necessarily get you an audit, but it will get the attention you may not want. Make sure to double-check your returns and have a qualified tax professional assist you and keep you out of tax trouble.
Filing an Amended Return - The 1040X
Individual income tax returns filed with the IRS can be amended up to three years after the due date of the original return by filing IRS Form 1040X.
On a 1040X form, the IRS only asks to be shown what was originally filed, what the corrected details are, and the reason why you need to make changes. The form also includes a section where you get to change the personal exemptions that you've claimed on your tax return -- just in case you make a mistake listing your dependents.
A few tips on filing your 1040X form
● For each year that you need to make corrections for, you need to use a separate 1040X form and mail it in, in its own envelope.
● Each form should have the return year mentioned at the top.
● On the back of the form, you need to explain the changes you've made and your reasons for them.
● Any schedules, forms, or anything else that is affected by your change needs to be sent in with the form.
● If the corrections made to your federal form affect your state taxes, you need to send in a corrected return for that as well.
However, we strongly suggest consulting a tax resolution professional to help with your amended return. They can often file multiple years of unfiled tax returns, help you settle for a fraction of what you owe, and at the very least save you a headache.
You Have 3 Years
Many tax filers only notice a mistake on a tax return only when they look at it preparing their taxes the following year. Mistakes may come to their attention in one of several ways. They may share something with their tax preparer that they may have neglected to mention in the previous year. The tax preparer, then, may notice the need for amendments to a previous year's return, as well.
There is no set time period within which you must correct your return. You can do it any time you notice it. A general rule that the IRS follows, though, is to entertain corrections for 3 years after an original return is filed.
The 1040X is a paper-only form
Even if you always e-file your tax returns, you'll need to file the 1040X form as a physical, paper form. The IRS still isn't equipped to handle the 1040X form electronically. You also need to pay attention to where you mail it in - 1040X forms do not go to the same IRS service center address as regular returns.
If Correcting Your Mistake Results In More Taxes Owed, You Should Still Amend Your Return
If your tax return contains a mistake that shortchanges the IRS in a more serious way, chances are good that the IRS will discover it. For instance, if you made money off a freelancing job that you didn't file a 1099 form for, the IRS could find out and you could end up paying interest for a few years for the tax owed. If you catch it yourself, you'll save on interest, at least.
If you know you’ll have outstanding tax debt and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today. We help people find tax relief and sometimes settle their tax debt for a fraction of what’s owed.
