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9 posts from April 2015


Facts to Know About Late Tax Filing and Late Paying Penalties

As our clients will tell you, it's good to have a CPA and a tax preparation expert on your team to ensure you submit a correct tax return and pay only the taxes you owe on time.  However, after the April 15th tax deadline day, we often receive a number of calls from people who were not able for a variety of reasons to prepare and submit their tax return by the deadline.  The number one question usually has to do with the penalties for filing a tax return after the deadline and for not paying taxes owed on time.

Money_and_tax_return-500x375The IRS has compiled the following information that may help you if you are also wondering how the penalties and interest may pile up.  

Meanwhile, rest assured that our experienced tax preparation experts will be able to help you should you need to "catch up" on a late tax return filing. Remember:  It's better to file your tax return(s) as soon as you can, even if you can't pay right away. (Having trouble paying your tax obligation?  Check out our past blogs on payment options:  Ways to Pay Taxes, The EFTPS Tax Payment Option, and If You Missed the Tax Deadline. )

Here is the synopsis of penalties and interest that may accrue on late tax return filing and late tax payments: 

When there is no penalty:  If you are due a refund there is no penalty if you file a late tax return.

Interest and penalties when you owe taxes:  But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them.

Eight facts that you should know about tax-related penalties:

1.  Two penalties may apply. If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.

2. Penalty for late filing. The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.

3. Minimum late filing penalty. If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.

4. Penalty for late payment. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes. 5. Combined penalty per month. If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.

6. File even if you can’t pay. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. You should try other options to pay, such as getting a loan or paying by debit or credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov.

7. Late payment penalty may not apply. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.

8. No penalty if reasonable cause. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. There is also penalty relief available for repayment of excess advance payments of the premium tax credit for 2014.


So, bottom line.  Do the best you can to gather your tax documents and submit accurate federal and state tax returns, even if late.  Contact us at McRuer CPAs if you need more information or would like a review of how the above tax interest and penalties may affect you.  


If You Missed the Tax Deadline

If you were not able to file a tax return or an extension by the April 15th deadline, but should have, you need to take action now to avoid compiling penalties and interest.  Here are some tips for taxpayers who missed the tax filing deadline:

1040 with HELP spelled in calculatorFile as soon as you can.  If you owe taxes, you should file and pay as soon as you can.  This will stop the accrual of penalties and interest on the balance of tax that you owe. If your tax filing is more complicated (which is often the cause of taxpayer delays), contact us right away to set up your appointment to review your options and make certain your tax returns, both federal and state, are filed.

Pay as much as you can as soon as you can.  Sometimes taxpayers delay filing their tax returns because they are not able to pay what they owe or they simply are nervous about what amount they may owe.  Don't let this slow you down. It's better to know than to guess and worry over facts that may turn out to be untrue.

If you owe tax but can’t pay it in full, you should pay as much as you can when you file your tax return and then work out a way to pay the rest of the amount that is due over time.  Check out our blog about options for paying taxes by clicking here.

For example, if you need more time to pay the federal tax you owe and don't want to use a credit card or a bank loan, you may apply for an installment agreement through the IRS' Electronic Federal Tax Payment System or EFTPS.  This system allows you to set up a direct debit agreement.  You don’t need to write and mail a check each month with a direct debit plan as it will automatically deduct the amount specified each month.  You may also go online to your account at any time and make extra payments to help pay down the debt.  

If you're not comfortable using the online tool,  fill out Form 9465, Installment Agreement Request, to apply. You can find the form and other documents you may need on IRS.gov/forms at any time.

Also online, IRS Direct Pay offers you a free, secure and easy way to pay your tax directly from your checking or savings account.  If you are due a refund, there is no penalty for filing a late return.  You may receive the refund directly into your checking or savings account.  The sooner you file, the sooner you’ll receive that refund.

And that leads to an interesting tip:  A refund may indeed be waiting.  If you are due a refund, you should file as soon as possible to receive it.  Even if you are not required to file, you may still receive a refund.  This could apply if you had taxes withheld from your wages or you qualify for certain tax credits. You must file a return to claim tax credits.  If you do not file your return within three years, you could lose your right to the refund.

Contact us for more information--remember, if you haven't yet filed your taxes, better late than never.  Give us a call.


Ways to Pay Taxes

On tax deadline day--April 15th--the IRS has issued some tips about how to pay your taxes.  Here is the news release: 

11 Key Points About Paying Your Taxes

The IRS offers several payment options if you owe federal tax. Here are eleven key points to keep in mind when you pay your taxes this year. Hands with calculator

1.    Never send cash. Electronic payment options are the quickest and easiest way to pay your tax.

2.    Check out IRS Direct Pay to pay directly from your bank account. Access Direct Pay on IRS.gov. It’s secure and free. You will get instant confirmation that you have submitted your payment.

3.    You can pay taxes electronically 24/7 on IRS.gov. Just click on the ‘Payments’ tab near the top left of the home page for details.

4.    Pay in a single step by using your tax software when you e-file. If you use a tax preparer, ask the preparer to make your tax payment electronically.

5.    Whether you e-file your tax return or file on paper, you can choose to pay with a credit or debit card. The company that processes your payment will charge a processing fee.

6.    You may be able to deduct the credit or debit card processing fee on next year’s return. It’s claimed on Schedule A, Itemized Deductions. 

7.    Enroll in the Electronic Federal Tax Payment System. You can use EFTPS to pay your federal taxes electronically. You have a choice to pay using the Internet, or by phone using the EFTPS Voice Response System.

8.    If you can’t pay electronically, you can still pay by a personal or cashier’s check or money order. Make it payable to the “U.S. Treasury.” Be sure to write your name, address and daytime phone number on the front of your payment. Also, write the tax year, form number you are filing and your Social Security number. Use the SSN shown first if it's a joint return.

9.    If you pay by paper check, complete Form 1040-V, Payment Voucher. Mail it with your tax return and payment to the IRS. Make sure you send them to the address listed on the back of Form 1040-V. This will help the IRS process your payment and post it to your account. You can get the form on IRS.gov/forms at any time.

10.    Remember to include your payment with your tax return but do not staple or clip it to any tax form.

11.    Even if you can’t pay your tax in full, the IRS urges you to file your tax return on time. You should pay as much as you can with your tax return. That will help keep your penalty and interest costs down. You have options such as an installment agreement, which allows you to pay the balance over time. TheOnline Payment Agreement tool on IRS.gov is the easy way to apply.


We hope this information was helpful to you.  Please don't hesitate to contact us at McRuer CPAs if you have questions about making payments or other issues about your individual or business tax plan or return preparation. 


Financial Transaction Tax and How It May Affect You

Washington lawmakers are watching the Financial Transaction Tax (FTT) debate in Europe as Democrat party leaders have made enacting this kind of tax a central part of their economic proposals for 2015.  The effects of this debate could reach across international money markets into the pockets of common American taxpayers.

NYSEA FTT is a  monetary transactions tax usually associated with the financial sector as compared to consumption taxes that consumers pay on products and services.  Democrat Congressman Keith Ellison of Minnesota has introduced an even more specific “Inclusive Prosperity Act” which would tax the sale of stocks, bonds and derivatives.  It is part of the on-going party theme of supporting “Main Street over Wall Street.”  He claims the tax would reduce market speculation, discourage high-volume and high-speed trading, and slow down the proliferation of complex derivatives.

Republican FTT opponents argue these kinds of taxes would do little to harm Wall Street, even admitting they would raise badly needed revenue, but disagree about where the money would come from.  They claim FTTs would put financial stress on working Americans by increasing the costs of having individual, family and employee retirement accounts.  This would occur at a time when retirement plans operated by corporations are disappearing and Americans are already struggling with costs, both in time and money, associated with managing their own IRAs.  They say the new taxes would make it more difficult for common people to save and invest.

Financial transaction taxes in general are usually proposed at very small percentage rates, but they could affect all transactions, of which there may be dozens (or even hundreds depending upon the size and scope) per account every day.  Proponents believe the taxes would raise billions of dollars in new revenues.  While experts predict the debate will not lead to a specific action this year, the issue will remain on the burner ready to heat up in time for the 2016 Presidential race.

Worldwide, there are several types of financial transaction taxes being implemented by various organizations and regions.  Some are domestic meaning they are imposed only within one nation or financial region.  Others are multinational, and affect transactions made between countries.  Nearly 50 nations have some form of FTT today.

EU finance ministers have been fiercely debating the scope of the tax pushing for a wide tax base with low tax rates.  They have made a public commitment to start a EU FTT on January 1, 2016 with what’s called an “extra-territorial” reach across markets and nations.  Yet, the last meeting of the 28 Member States in February ended with little progress on key issues and they are not set to negotiate again until May.  Still to be worked out; who will collect the tax, the penalty for non-payment and who will be responsible for paying the penalty.


When It's Right to Itemize Deductions

Depending upon a taxpayer’s income, age, filing status and more, itemizing deductions on a tax return may help decrease the tax amount you owe.  The benefit to itemizing adds up only if the total amount of qualified itemized deductions is more than the standard deduction.

Pie chart with tax in redIf you don’t know the amount of your standard deduction, there is an online tool that you can use to find an estimated answer within a few minutes.  Generally, the standard deduction amount depends on your filing status, whether you are 65 or older, whether you are blind and whether another taxpayer can claim an exemption for you.  The standard deduction amounts are adjusted each year for inflation.

For the 2014 tax year, the standard deduction ranges from $7,750 for a single-filing taxpayer up to $17,200 for a widow(er) with dependent children.

Here are a few specific circumstances that may signal it’s time to itemize for the best tax benefit:


  • You do not qualify for the standard deduction, or the amount you can claim is limited.
  • You have total itemized deductions that are more than the standard deduction to which you otherwise are entitled.
  • You paid interest and taxes on your home.
  • You made large contributions to qualified charities.
  • You had large uninsured medical and/or dental expenses during the year.
  • You had large uninsured casualty or theft losses.
  • You had large unreimbursed business expenses or other miscellaneous work-related deductions.


Consider that you may benefit from itemizing deductions if your standard deduction is zero and you are married filing a separate return, and your spouse itemizes deductions; or, if you are filing a tax return for a short tax year because of a change in your annual accounting period. 

Also, a nonresident or dual-status alien (a person who was a nonresident and a resident alien during the same tax year such as someone who married a U.S. citizen) may find the best choice is to itemize deductions.

A taxpayer wishing to itemize their deductions on their federal individual income tax return must use Schedule A (Form 1040).  The form itself can also help you determine whether your deductions will add up to an amount that provides more tax-savings than the standard deduction.

Make certain that you can support expense claims with receipts and other documentation.  Filling out the forms and gathering the necessary paperwork to itemize deductions will take more time compared to choosing the standard deduction, but many taxpayers reap the rewards of the time invested in tax savings.

For more information, contact one of our tax preparation experts at McRuer CPAs.


Qualifying for the Earned Income Tax Credit

Worker graphic imageThe IRS reports millions of American workers may qualify for the Earned Income Tax Credit (EITC) for the first time this year due to changes in their marital, parental or financial status; though many are unaware that this credit exists.

The EITC is a benefit for people with low or moderate income, and may reduce the amount of tax they owe or give them a refund.  To receive the credit, workers must file a return and make a specific EITC claim even if they aren’t generally required to file.

Qualifying taxpayers must have earned $52,427 or less in 2014 and have worked for someone else or owned or operated their own business or farm.  Up to three qualifying children can be claimed and may increase the credit amount.  Receiving the credit will not affect eligibility for other federal assistance or benefits programs.

Active-duty military, members of the clergy and some persons who have certain types of disability income may also qualify for the EITC and must meet special income reporting rules.

Because the EITC is a refundable tax credit, workers may get money back, even if they paid in no tax.  Nationwide last year almost 28 million eligible individuals and families received more than $66 billion in EITC.  The average EITC received was $2,407.

Note: The EITC is subject to special rules and eligibility may be a bit complex to interpret. There is an online tool called the EITC Assistant that may help you determine if you qualify and what amount of credit you may receive.  If you have any questions, please contact us at McRuer CPAs.


Social Security Disability In Trouble

Officials report the Social Security Disability Insurance (SSDI) program is in trouble financially and in less than two years is expected to not be able to pay full benefits.

Social-security-disabilitySSDI provides supplemental income to the mentally or physically disabled who cannot work full-time.  The Social Security Administration reports that more than 11 million Americans receive SSDI payments each year.

The SSDI has petitioned lawmakers to access funds in the broader, less financially stressed Social Security retirement program until its own funding deficit can be solved.

It’s not surprising that positions about this issue divide along party lines. Republicans want the SSDI to fix its underlying costly administration structure that drains funds, which could otherwise be paid as benefits.  They also want to change eligibility requirements to limit benefit payments to those who are most needy. 

Democrats claim the Republicans had already targeted SSDI for budget cuts and are using the current fiscal crisis as a way to cut benefits overall creating "a crisis where none exists.”  They say Republicans are refusing for political reasons to accept a proposal supported by President Obama that they claim could fix the problem.  A number of Democrats are pushing for increases in both disability and social security retirement benefits.

Financial and political analysts agree the issue will be a major debate topic and will be one of the first action items the next President must address in early 2016.

The health of the larger Social Security retirement fund remains unclear.  Annual reports predict the fund will be depleted by 2033.  The Heritage Foundation confirms the cash-flow deficit began in 2010 when $51 billion in benefits were paid above what was received in payroll taxes, and numbers show the deficit is getting worse each year.  An effort to reallocate funds from one resource to another is considered a temporary fix.  At the present payment rate all reserve funds may dry up in 20 years.

Some proposed solutions include increasing the Social Security tax from 6.2% to 7% of earnings, changing the cost-of-living adjustment, enacting a means test that would reduce or eliminate social security for retirees with higher incomes, and raising the retirement age to 68.

If you have questions about how your retirement plans may be affected by Social Security funding issues, contact McRuer CPAs for a review of your strategies and goals.


File Taxes on Time Even if You Can't Pay

Closeup deadline stop watchThe IRS has issued a short and informative release urging taxpayers to file by the April 15th deadline even if you can't pay the taxes that are owed.  This helps you avoid late filing penalties.  The IRS will also work with you to help you pay taxes owed. Call McRuer CPAs at 816.741.7882 or contact us online if you have any questions or need assistance in filing your taxes on time.

You may also want to read our blogs:  The Cost of Filing Late and Paying Late and the EFTPS Tax Payment Option.

Here is the IRS Release:


Do you owe more tax than you can afford to pay when you file? If so, don’t fail to take action. Make sure to file on time. That way you won’t have a penalty for filing late. Here is what to do if you can’t pay all your taxes by the due date.

  • File on time and pay as much as you can.  You should file on time to avoid a late filing penalty. Pay as much as you can with your tax return. The more you can pay on time, the less interest and late payment penalty charges you will owe.
  • Pay online with IRS Direct Pay.  IRS Direct Pay is the latest electronic payment option available from the IRS. It allows you to schedule payments online from your checking or savings account with no additional fee and with an immediate payment confirmation. It’s, secure, easy, and much quicker than mailing in a check or money order. To make a payment or to find out about your other options to pay, visit IRS.gov/payments.
  • Pay the rest of your tax as soon as you can.  If it is possible, get a loan or use a credit card to pay the balance. The interest and fees charged by a bank or credit card company may be less than the interest and penalties charged for late payment of tax. Fordebit or credit card options, visit IRS.gov.
  • Use the Online Payment Agreement tool.  You don’t need to wait for IRS to send you a bill to ask for an installment agreement. The best way is to use the Online Payment Agreement tool on IRS.gov. You can even set up a direct debit installment agreement. When you pay with a direct debit plan, you won’t have to write a check and mail it on time each month. And you won’t miss any payments that could mean more penalties. If you can’t use the IRS.gov tool, you can file Form 9465, Installment Agreement Request instead. You can view, download and print the form on IRS.gov/forms anytime.  
  • Don’t ignore a tax bill.  If you get a bill, don’t ignore it. The IRS may take collection action if you ignore the bill. Contact the IRS right away to talk about your options. If you face a financial hardship, the IRS will work with you.

In short, remember to file on time. Pay as much as you can by the tax deadline. Pay the rest as soon as you can. Find out more about the IRS collection process on IRS.gov. Also check out IRSVideos.gov/OweTaxes

Joint Tax Returns and Your Tax Liability

Married taxpayers who file their income tax returns jointly enjoy tax benefits that may help reduce the amount of taxes they owe.  Yet this benefit comes at a price.  Many married couples don’t realize that each taxpayer is equally responsible under penalties of perjury for verifying that filed income Sign joint taxestax information is correct, and for paying the tax.  Errors, omissions and even purposeful untruths filed by one spouse are the responsibility of both. This is true even after a subsequent divorce. Of course, that’s where things can get a bit “sticky”.

When filing jointly, both married taxpayers do so under the legal concept termed “joint and several liability.”  The definition means that each taxpayer is legally responsible for the entire liability, even if they are not responsible for a mistake or omission.  Subject to some limited exceptions discussed below, each spouse is considered “jointly and severally” liable for the taxes owed and any additions for interest or penalties that may arise from information reported on the joint return.  This is true even if they later divorce.

Each spouse or former spouse is potentially responsible for all the tax due, even though only one spouse may have earned all the income and/or claimed improper deductions and/or credits.  Even if a judge’s divorce decree holds a former spouse responsible for amounts due on previously-filed joint returns, the IRS may reach beyond that holding to enforce federal income tax collection mandates on both or either taxpayer until the taxes owed are paid or an agreement for relief is settled.

There are only 3 types of relief from joint and several liability that are available to spouses and ex-spouses who filed joint returns that later turned out to contain mistakes or purposeful errors.

The first and most often claimed type of liability release is Innocent Spouse Relief.  To qualify, a taxpayer must show that any error revealed on a joint return was solely attributable to the spouse or ex-spouse.  It must also be shown that at the time the error was submitted the taxpayer had no knowledge and no reason to know that an error was made.  The innocent taxpayer must establish that it would be unfair to hold them solely accountable for the consequences.

The second type of claim a taxpayer may use is Separation of Liability Relief.  To qualify, a taxpayer must show that he or she is responsible for only a portion of the additional tax owed.  It is a request to split the tax liability between the taxpayer and a former spouse or current spouse from whom the taxpayer is separated based upon corrected information.  The taxpayer would then pay only the proven part of the outstanding tax, penalties and interest for which the taxpayer is individually responsible.To qualify for this type of relief, a taxpayer must be divorced or legally separated from the spouse with whom the joint return was filed, or be widowed.  The taxpayer may not have been a member of the same household of the spouse or ex-spouse within a 12-month period of the request.

You must file for the Innocent Spouse or Separation of Liability Relief no later than 2 years after the IRS tries to collect any unpaid taxes, penalties and/or interest.  When a request for relief is made, the IRS must notify the spouse with whom the joint return was filed and allow him or her to provide information for consideration regarding the claim.

A final form of innocent spouse tax liability relief is Equitable Relief, which may apply if the tax reported is correct on the joint return, but the tax was not paid. It is also the relief that an abused spouse may claim if they knew the tax return was erroneous, but signed the tax documents fearing retaliation.  The IRS may take into account whether additional tax liability may create a significant economic hardship.

Carrying tax liabilityThis relief is not to be confused with regulations that apply to an “injured” spouse in which all or part of that taxpayer’s refund from a joint return was captured to satisfy a separate past-due federal or state tax liability of the spouse or ex-spouse, child support or federal non-tax debt such as a student loan.  If a taxpayer can prove that they qualify, he or she may be able to recoup his or her share of a refund by filing for an Injured Spouse Allocation.

These kinds of situations are painful enough without having to argue about taxes.  If you have questions, call us for a confidential consultation at 816.741.7882 or connect with us online.

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