Monthly Archives: June 2017

Private IRS Debt Collectors

You may have heard the adage “The IRS will never call you”, commonly shared among taxpayers to help distance friends and loved-ones from telephone scammers. While it is always wise to be extra careful with anyone claiming to be contacting you on behalf of the IRS, the line has recently become a little more blurred.

The Internal Revenue Service has begun a new private collection program of certain overdue federal tax debts; selecting four contractors to implement it.

The new program, authorized under a federal law enacted by Congress, enables these designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables.

General Information

As a condition of receiving a contract, these agencies must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act.

These private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working them. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases.

The IRS will give taxpayers and their representative written notice that the accounts are being transferred to the private collection agencies. The agencies will send a second, separate letter to the taxpayer and their representative confirming this transfer.

Private collection agencies will be able to identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies must follow provisions of the Fair Debt Collection Practices Act and should be courteous and respect taxpayer rights.

The IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment.

Private collection agencies will not ask for payment on a prepaid debit, iTunes or gift card. Taxpayers will be informed about electronic payment options for taxpayers on IRS.gov. Payment by check should be payable to the U.S. Treasury and sent directly to IRS, not the private collection agency.

Posted on June 1, 2017

Important Facts about Filing Late and Paying Penalties

April 18 was this year’s deadline for most people to file their federal tax return and pay any tax they owe. If taxpayers are due a refund, there is no penalty if they file a late tax return.

Taxpayers who owe tax, and failed to file and pay on time, will most likely owe interest and penalties on the tax they pay late. To keep interest and penalties to a minimum, taxpayers should file their tax return and pay any tax owed as soon as possible.

Here are some facts that taxpayers should know:

  1. Two penalties may apply. One penalty is for filing late and one is for paying late. They can add up fast. Interest accrues on top of penalties
  2. Penalty for late filing. If taxpayers file their 2016 tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if they owe less than $205, 100 percent of the unpaid tax. Otherwise, the penalty can be as much as 5 percent of their unpaid taxes each month up to a maximum of 25 percent.
  3. Penalty for late payment. The penalty is generally 0.5 percent of taxpayers’ unpaid taxes per month. It can build up to as much as 25 percent of their unpaid taxes.
  4. Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.
  5. Taxpayers should file even if they can’t pay. Filing and paying as soon as possible will keep interest and penalties to a minimum. If a taxpayer can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS.
  6. Payment options. Taxpayers should explore their payment options at IRS.gov/payments. For individuals, IRS Direct Pay is a fast and free way to pay directly from a checking or savings account. The IRS will work with taxpayers to help them resolve their tax debt. Most people can set up a payment plan using the Online Payment Agreement tool on IRS.gov.
  7. Late payment penalty may not apply. If taxpayers requested an extension of time to file their income tax return by the tax due date and paid at least 90 percent of the taxes they owe, they may not face a failure-to-pay penalty. However, they must pay the remaining balance by the extended due date. Taxpayers will owe interest on any taxes they pay after the April 18 due date.
  8. No penalty if reasonable cause. Taxpayers will not have to pay a failure-to-file or failure-to-pay penalty if they can show reasonable cause for not filing or paying on time.

Posted on June 1, 2017

Hobby or Business?

Taxpayers must report on their tax return the income earned from hobbies. The rules for how to report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions taxpayers can claim for hobbies. Here are four tax tips to consider:

  1. Is it a Business or a Hobby?  A key feature of a business is that people do it to make a profit. People engage in a hobby for sport or recreation, not to make a profit. Consider nine factors when determining whether an activity is a hobby. Make sure to base the determination on all the facts and circumstances.
  2. Allowable Hobby Deductions.  Within certain limits, taxpayers can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.
  3. Limits on Hobby Expenses.  Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.
  4. How to Deduct Hobby Expenses.  Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type.

Posted on June 1, 2017

Hurricane Preparedness Tips for Taxpayers

Don’t Forget to Update Emergency Plans

Because a disaster can strike any time, be sure to review emergency plans annually. Personal and business situations change over time, as do preparedness needs. When employers hire new employees or when a company or organization changes functions, they should update plans accordingly and inform employees of the changes. Make plans ahead of time and be sure to practice them.

Create Electronic Copies of Key Documents

Keep a duplicate set of key documents including bank statements, tax returns, identifications and insurance policies in a safe place such as a waterproof container and away from the original set.

Doing so is easier now that many financial institutions provide statements and documents electronically, and financial information is available on the Internet. Even if the original documents are provided only on paper, these can be scanned into an electronic format. This way, you can download them to a storage device such as an external hard drive or USB flash drive, or burn them to a CD or DVD.

Document Valuables

It’s a good idea to photograph or videotape the contents of any home, especially items of higher value. Documenting these items ahead of time will make it easier to claim any available insurance and tax benefits after the disaster strikes. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

Photographs can help anyone prove the fair market value of items for insurance and casualty loss claims. Ideally, photos should be stored with a friend or family member who lives outside the area.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

Posted on June 1, 2017

Upcoming Tax Deadlines

June

Th 15 Individuals living outside the U.S.: File Form 1040. For automatic 4 month extension file form 4868 and deposit estimated tax.

Th 15 Pay the second installment of 2017 estimated tax -Use Form 1040-ES.

Th 15 Corporations: Deposit the second installment of your 2017 estimated tax.


July

Mo 31 Deposit FUTA owed through June if more than $500.

Mo 31 File Form 941 for the second quarter.


August

Th 10 File Form 941 for the second quarter if you timely deposited all required payments.


September

Fr 15 Pay the third installment of your 2017 estimated tax – Use Form 1040-ES.

Fr 15 C corporations: Deposit the third installment of your 2017 estimated tax.

Fr 15 S Corporations: File Form 1120-S if you timely requested an extension – see Form 7004

Fr 15 Partnerships: File Form 1065 if you timely requested an extension – see Form 7004

Fr 15 Electing Large Partnerships: File Form 1065-B if you timely requested an extension.