Tax Tips, Information, Resources, and Penalties
Five Things to Know about Estimated Taxes and Withholding
Source: Source: IRS Tax Tip 2017-70 November 2, 2017
With 10 million taxpayers a year facing estimated tax penalties, the IRS offers some simple tips to help prevent a surprise at tax time.
People pay taxes on income through withholding on their paycheck or through estimated tax payments. Taxpayers who pay enough tax throughout the year can avoid a large tax bill and penalties when they file their return.
Taxpayers should make estimated tax payments if:
- The tax withheld from their income does not cover their tax for the year.
- They have income without withholdings. Some examples are interest, dividends, alimony, self-employment income, capital gains, prizes or awards.
Here are five actions taxpayers can take to avoid a large bill and estimated tax penalties when they file their return. They can:
- Use Form 1040-ES. Individuals, sole proprietors, partners and S corporation shareholders can use this form to figure estimated tax. This form helps someone calculate their expected income, taxes, deductions and credits for the year. They can then figure their estimated tax payments.
- Use the Withholding Calculator on IRS.gov. This tool helps users figure how much money their employer should withhold from their pay so they don’t have too much or too little tax withheld. The results from the calculator can also help them fill out their Form W-4. Taxpayers whose income isn’t paid evenly throughout the year, can check Publication 505 instead of the calculator.
- Have more tax withheld. Taxpayers with a regular paycheck can have more tax withheld from it. To do this, they must fill out a new Form W-4 and give it to their employer. This is a good option for taxpayers who participate in a sharing economy activity as a side job or part-time business.
- Use estimated payments to pay other taxes. Self-employed individuals can make estimated tax payments to pay both income tax and self-employment tax. Self-employment tax includes Social Security and Medicare.
- Use Form W-4P. Generally, pension and annuity plans withhold tax from retirees’ payments. Recipients of these payments can adjust their withholding using Form W-4P and give it to their payer.
- Publication 505, Tax Withholding and Estimated Tax
- Publication 525, Taxable and Nontaxable Income
Gifts to Charity: Six Facts About Written Acknowledgements
Source: Tax Tip 2017-59 October 16, 2017.
Throughout the year, many taxpayers contribute money or gifts to qualified organizations eligible to receive tax-deductible charitable contributions. Taxpayers who plan to claim a charitable deduction on their tax return must do two things :
- Have a bank record or written communication from a charity for any monetary contributions.
- Get a written acknowledgment from the charity for any single donation of $250 or more.
Here are six things for taxpayers to remember about these donations and written acknowledgements :
- Taxpayers who make single donations of $250 or more to a charity must have one of the following:
- A separate acknowledgment from the organization for each donation of $250 or more.
- One acknowledgment from the organization listing the amount and date of each contribution of $250 or more.
- The $250 threshold doesn’t mean a taxpayer adds up separate contributions of less than $250 throughout the year.
- For example, if someone gave a $25 offering to their church each week, they don’t need an acknowledgement from the church, even though their contributions for the year are more than $250.
- Contributions made by payroll deduction are treated as separate contributions for each pay period.
- If a taxpayer makes a payment that is partly for goods and services, their deductible contribution is the amount of the payment that is more than the value of those goods and services.
- A taxpayer must get the acknowledgement on or before the earlier of these two dates:
- The date they file their return for the year in which they make the contribution.
- The due date, including extensions, for filing the return.
- If the acknowledgment doesn't show the date of the contribution, the taxpayers must also have a bank record or receipt that does show the date.
- Can I Deduct My Charitable Contributions?
- Publication 526, Charitable Contributions
- Tax Topic 506, Charitable Contributions
- Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements
Learn about Tax Benefits for Education
Source: IRS Summertime Tax Tip 2017-25 August 30, 2017
The beginning of the school year is a good time for a reminder of the tax benefits for education. These benefits can help offset qualifying education costs.
Here is information about two tax credits available to those who pay higher education costs for themselves, a spouse or a dependent.
The American Opportunity Tax Credit (AOTC) is:
- Worth a maximum benefit up to $2,500 per eligible student.
- Only available for the first four years at an eligible educational or vocational school.
- For students pursuing a degree or other recognized education credential.
- Partially refundable. Eligible taxpayers can get up to $1,000 of the credit as a refund, even if they do not owe any tax.
The Lifetime Learning Credit (LLC) is:
- Worth up to $2,000 per tax return, per year, no matter how many students qualify.
- Available for all years of postsecondary education and for courses to acquire or improve job skills.
- Available for an unlimited number of tax years
Taxpayers should use Form 8863, Education Credits, to claim these education credits.
- A student is required to have Form 1098-T, Tuition Statement, to be eligible for an education benefit. They receive this form from the school attended.
- Taxpayers may use only qualified expenses paid to figure a tax credit. These include tuition and fees and other related expenses for an eligible student.
- Eligible educational schools are those that offer education beyond high school. This includes most colleges and universities.
- Taxpayers may only claim qualified expenses in the year paid.
- Taxpayers can’t claim either credit if someone else claims them as a dependent.
- Income limits could reduce the amount of credits.
- Taxpayers can’t claim either the AOTC or LLC for the same student or for the same expense in the same year.
See IRS Publication 970, Tax Benefits for Education, for details, rules, examples and a complete explanation of benefits.
Job Search Expenses Can be Tax Deductible
Source: IRS Summertime Tax Tip 2017-24 August 25, 2017.
Taxpayers who are looking for a new job that is in the same line of work may be able to deduct some job-hunting expenses on their federal income tax return, even if they don’t get a new job.
Here are some important facts to know about deducting costs related to job searches:
- Same Occupation. Expenses are tax deductible when the job search is in a taxpayer’s current line of work.
- Résumé Costs. Costs associated in preparing and mailing a résumé are tax deductible.
- Travel Expenses. Travel costs to look for a new job are deductible. Expenses including transportation, meals and lodging are deductible if the trip is mainly to look for a new job. Some costs are still deductible even if looking for a job is not the main purpose of the trip.
- Placement Agency. Job placement or employment agency fees are deductible.
- Reimbursed Costs. If an employer or other party reimburses search related expenses, like agency fees, they are not deductible.
- Schedule A. Report job search expenses on Schedule A of a 1040 tax return and claim them as miscellaneous deductions. The total miscellaneous deductions cannot be more than two percent of adjusted gross income.
Taxpayers can’t deduct these expenses if they:
- Are looking for a job in a new occupation,
- Had a substantial break between the ending of their last job and looking for a new one, or
- Are looking for a job for the first time.
For more on job hunting, refer to Publication 529, Miscellaneous Deductions.
Divorce or Separation May Affect Taxes
Source: IRS Summertime Tax Tip 2017-23 August 23, 2017
Taxpayers who are divorcing or recently divorced need to consider the impact divorce or separation may have on their taxes. Alimony payments paid under a divorce or separation instrument are deductible by the payer, and the recipient must include it in income. Name or address changes and individual retirement account deductions are other items to consider. …
- Child Support Payments are not Alimony. Child support payments are neither deductible nor taxable income for either parent.
- Deduct Alimony Paid. Taxpayers can deduct alimony paid under a divorce or separation decree, whether or not they itemize deductions on their return. Taxpayers must file Form 1040; enter the amount of alimony paid and their former spouse's Social Security number or Individual Taxpayer Identification Number.
- Report Alimony Received. Taxpayers should report alimony received as income on Form 1040 in the year received. Alimony is not subject to tax withholding so it may be necessary to increase the tax paid during the year to avoid a penalty. To do this, it is possible to make estimated tax payments or increase the amount of tax withheld from wages.
- IRA Considerations. A final decree of divorce or separate maintenance agreement by the end of the tax year means taxpayers can’t deduct contributions made to a former spouse's traditional IRA. They can only deduct contributions made to their own traditional IRA. For more information about IRAs, see Publications 590-A and 590-B.
- Report Name Changes. Notify the Social Security Administration (SSA) of any name changes after a divorce. … The name on a tax return must match SSA records. A name mismatch can cause problems in the processing of a return and may delay a refund.
For more on this topic, see Publication 504, Divorced or Separated Individuals.
File Form 1040X to Amend a Tax Return
Source: IRS Summertime Tax Tip 2017-22 August 21, 2017.
Mistakes happen and tax returns are no exception. Filing an amended tax return corrects information that changes tax calculations. This includes making changes to filing status and dependents, or correcting income credits or deductions. Don’t file an amended return to fix math errors because the IRS will correct those.
The IRS offers tips on how to amend a tax return:
- File using paper form. Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct errors to an original tax return the taxpayer has already filed. Taxpayers can’t file amended returns electronically. Mail the Form 1040X to the address listed in the form’s instructions.
- Preparing Form 1040X. Many taxpayers find the easiest way to figure the entries for Form 1040X is to make the changes in the margin of the original tax return and then transfer the numbers to their Form 1040X. Taxpayers should be sure to check a box at the top to show the year they are amending. Form 1040X will be the taxpayer’s new tax return, changing the original entries to include new information. Taxpayers should explain what they are changing and why on the second page of Form 1040X in Part III.
- Know when to amend. Taxpayers should amend a tax return to correct their filing status, the number of dependents or total income. They should also amend to claim deductions or credits not claimed or to remove deductions and credits they are not entitled to on the original return. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return.
- Know when NOT to amend. In some cases, it is not necessary to amend a tax return. Taxpayers should not worry about math errors because the IRS will make the correction. Taxpayers do not need to amend their return if they forgot to include a required form or schedule. The IRS will mail a request to the taxpayer, if needed.
- Use separate forms for each tax year. Taxpayers amending tax returns for more than one year will need a separate 1040X for each tax year. Mail each tax year’s Form 1040X in separate
envelopes. See "Where to File" in the instructions for Form 1040X for the correct address.
- Include other forms or schedules. If a taxpayer makes changes to any form or schedule, they should attach them to the Form 1040X when filing. Not doing so could cause a delay in processing.
- Wait to file for corrected refund for tax year 2016. Taxpayers should wait for the refund from their original tax return before filing an amended return. It is okay to cash the refund check from the original return before receiving any additional refund. Amended returns can take up to 16 weeks to process.
- Pay additional tax. Taxpayers filing an amended return because they owe more tax should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
- File within three-year time limit. Generally, to claim a refund, taxpayers must file a Form 1040X within three years from the date they timely filed their original tax return or within two years from the date the person pays the tax, whichever is later. For taxpayers who filed their original return early (for example, March 1 for a calendar year return), their return is considered filed on the due date (generally April 15).
- Track your amended return. Taxpayers can track the status of an amended return three weeks after filing. Go to “Where’s My Amended Return?” or call 866-464-2050.
Moving Expenses May Be Deductible
Source: IRS Summertime Tax Tip 2017-20 August 16, 2017.
Taxpayers may be able to deduct certain expenses of moving to a new home because they started or changed job locations. Use Form 3903, Moving Expenses, to claim the moving expense deduction when filing a federal tax return.
Home means the taxpayer’s main home. It does not include a seasonal home or other homes owned or kept up by the taxpayer or family members. Eligible taxpayers can deduct the reasonable expenses of moving household goods and personal effects and of traveling from the former home to the new home.
Reasonable expenses may include the cost of lodging while traveling to the new home. The unreimbursed cost of packing, shipping, storing and insuring household goods in transit may also be deductible.
Who Can Deduct Moving Expenses?
- The move must closely relate to the start of work. Generally, taxpayers can consider moving expenses within one year of the date they start work at a new job location.
- The distance test. A new main job location must be at least 50 miles farther from the employee’s former home than the previous job location. For example, if the old job was three miles from the old home, the new job must be at least 53 miles from the old home. A first job must be at least 50 miles from the employee’s former home.
- The time test. After the move, the employee must work full-time at the new job for at least 39 weeks in the first year. Those self-employed must work full-time at least 78 weeks during the first two years at the new job site.
Different rules may apply for members of the Armed Forces or a retiree or survivor moving to the United States.
Here are a few more moving expense tips from the IRS:
- Reimbursed expenses. If an employer reimburses the employee for the cost of a move, that payment may need to be included as income. The employee would report any taxable amount on their tax return in the year of the payment.
- Recordkeeping. It is important that taxpayers maintain an accurate record of expenses paid to move. Save items such as receipts, bills, canceled checks, credit card statements, and mileage logs. Also, taxpayers should save statements of reimbursement from their employer.
- Address Change. After any move, update the address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.
Helpful Tips to Know About Gambling Winnings and Losses
Source:IRS Summertime Tax Tip 2017-15 August 4, 2017.
Taxpayers must report all gambling winnings as income. They must be able to itemize deductions to claim any gambling losses on their tax return.
Taxpayers who gamble may find these tax tips helpful:
- Gambling income. Income from gambling includes winnings from the lottery, horseracing and casinos. It also includes cash and non-cash prizes. Taxpayers must report the fair market value of non-cash prizes like cars and trips to the IRS.
- Payer tax form. The payer may issue a Form W-2G, Certain Gambling Winnings, to winning taxpayers based on the type of gambling, the amount they win and other factors. The payer also sends a copy of the form to the IRS. Taxpayers should also get a Form W-2G if the payer withholds income tax from their winnings.
- How to report winnings. Taxpayers must report all gambling winnings as income. They normally should report all gambling winnings for the year on their tax return as “Other Income.” This is true even if the taxpayer doesn’t get a Form W-2G.
- How to deduct losses. Taxpayers are able to deduct gambling losses on Schedule A, Itemized Deductions, but keep in mind, they can’t deduct gambling losses that are more than their winnings.
- Keep gambling receipts. Keep records of gambling wins and losses. This means gambling receipts, statements and tickets or by using a gambling log or diary.
See Publication 525, Taxable and Nontaxable Income, for rules on gambling and Publication 529, Miscellaneous Deductions, for more information on losses. Publication 529 also lists specific types of gambling records a taxpayer may want to keep.
How Does the IRS Contact Taxpayers?
Source: IRS Summertime Tax Tip 2017-14 August 2, 2017.
When the IRS needs to contact a taxpayer, the first contact is normally by letter delivered by the U.S. Postal Service. The IRS doesn't normally initiate contact with taxpayers by email, nor does it send text messages or contact through social media channels.
Depending on the situation, IRS employees may first call or visit with a taxpayer. In some instances, advance notice is provided in writing via a letter or notice, but not always.
IRS Phone Calls
- IRS revenue officers work directly with taxpayers to educate them about their options to resolve delinquencies and to collect delinquent taxes and tax returns, while protecting taxpayers' rights.
- IRS revenue agents or tax compliance officers may call a taxpayer or tax professional after mailing a notice to confirm an appointment or to discuss items for a scheduled audit.
- Private debt collectors can call taxpayers for the collection of certain outstanding inactive tax liabilities but only after the taxpayer and their representative has received written notice.
Private debt collectors for the IRS must respect taxpayers' rights and abide by the consumer protection provisions of the Fair Debt Collection Practices Act.
- IRS revenue officers routinely make unannounced visits to a taxpayer’s home or place of business to discuss taxes owed, delinquent tax returns or a business falling behind on payroll tax deposits. IRS revenue officers will request payment of taxes owed by the taxpayer; however, payment will never be requested to a source other than the US Treasury.
- RS revenue agents usually visit taxpayers or tax professionals to conduct the audit after either mailing a notice and/or agreeing on the day and time. IRS revenue agents will sometimes make unannounced visits to a taxpayer’s home or place of business to discuss a tax matter.
- IRS criminal investigators are federal law enforcement agents who may visit a taxpayer’s home or place of business unannounced while conducting an investigation. They will not demand any sort of payment
Ask For Credentials
IRS representatives can always provide two forms of official credentials: a pocket commission and a Personal Identity Verification Credential (PIV). Pocket commissions describe the specific authority and responsibilities of the authorized holder. The PIV is a government-wide standard for secure and reliable forms of identification for federal employees and contractors. Criminal investigators also have a badge and law enforcement credentials.
All tax payments are to the U.S. Treasury. Taxpayers should never use a preloaded debit card or wire transfer to make a payment. …
IRS employees and contractors will never:
- Be hostile or insulting
- Demand payment without giving taxpayers the opportunity to question or appeal the amount
- Require a specific payment method, such as a prepaid debit card
- Threaten lawsuits, arrest, deportation or other action for not paying
- Ask for credit or debit card numbers over the phone.