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4 posts from March 2018


IRS Raises Its Interest Rates on Unpaid Overpaid Taxes

The IRS has announced the interest rates it charges on unpaid, overpaid and underpaid income taxes are going up.  IRS interest rates are determined on a quarterly basis and are generally based on the federal short-term rate plus certain percentage points. IRS Interest Rates Going Up

Beginning April 1, 2018, the new interest rate the IRS will charge for underpayment of taxes will be 5% (up from 4.18% in 2017) for individual taxpayers and 7% for large corporate taxpayers.  The interest rate is charged on any unpaid tax from the original due date of the return until the date of payment.  It is compounded daily.

Also this April, the rate for overpayment of taxes will increase to 5% for individuals and 4% in the case of a corporation plus 2.5% for the portion of a corporate overpayment that exceeds $10,000.  It may be hard to imagine someone or a company paying more taxes than they owe, but this happens most often with individuals who must pay quarterly estimated taxes based on a guess of what their income may be.  Overpayments may also occur with  businesses that withhold the incorrect amount of income tax based on unrealized predictions.

If you owe tax and don’t file on time, penalties are assessed in addition to the interest on unpaid tax. The late-filing penalty is usually 5% of the tax owed for each month the return is late up to five months or no more than a total of 25% of the tax owed. If you file more than 60 days after the due date, the minimum penalty you face is $205 or 100% of your unpaid tax, whichever is less.

If you file on time, pay some of the tax you owe, but don’t pay all the tax that is owed, then you’ll generally have to pay a late-payment penalty of .5% (one-half of one percent) of the outstanding balance of tax you owe per month, until the tax is paid in full.  So, there is a benefit to paying as much as you can, if not all you owe, when you file your tax return.

If there are months in which both the late-filing and late-payment penalties apply, then the 0.5% late-payment penalty may be waived.

Interest rates on under- and over-paid taxes have ranged from a high of 9% in the 1995 and 2001 tax years, to a low of 3% from 2011 to 2016 tax years.

If you don’t pay the tax you owe when you file your tax return, you’ll receive a notice from the IRS in the form of a letter, basically a bill, for the amount you owe. The bill is the official start of the collection process.  It will include the amount of the tax, plus any penalties and interest accrued on your unpaid balance from the date the tax was due.

The IRS has the right to levy (seize) assets such as wages, bank accounts, social security benefits, and retirement income. The IRS may also seize your property (including your car, boat, or real estate) and sell the property to satisfy an outstanding tax debt. In addition, any future federal or state income tax refunds that you're due may be seized and applied to your federal tax liability.

In some cases, you may be able to work with the IRS to decrease what you owe in penalties and interest if you can prove a hardship, but your case will be subject to IRS discretion.

Because the unpaid balance is subject to interest that compounds daily and a monthly late payment penalty, it is in a taxpayer’s best interest to pay a tax liability in full as soon as possible. If you are not able to pay in full, you may qualify for an installment agreement with the IRS with several options to pay.

You may discover interest rates and any applicable fees charged by a credit card company or bank are lower than the combination of interest and penalties imposed by the Internal Revenue Code. So, you may consider exploring outside options to pay the IRS in full and make other arrangements to avoid ongoing penalties and interest.

If you have any questions about the issue of filing and paying taxes you owe on time and in full, please contact one of our tax preparation specialists at McRuer CPAS.


Identity Theft Targets Business Data

Good news. Bad news. New data shows tax-related identity theft is declining rapidly as federal and state tax and law enforcement officials seek solutions together.  Unfortunately, thieves and scammers continue to develop new schemes targeting both individuals and businesses yielding more stolen data and dollars per incident.

Identity thief eyes personal online dataA business can hardly do business without collecting and holding clients’ private and identifying information, including names and addresses, phone numbers, and email addresses.   Many businesses also collect and maintain their clients’ birth dates, credit information, Social Security numbers and more.  If a data security breach occurs, these individuals are at risk for tax-related identity theft.  Their personal information is used to file fake tax returns requesting refunds.  In other schemes, scammers posing as IRS representatives, or federal or state authorities or creditors directly demand payments for taxes that are not owed.

Businesses are warned to keep up with current scam and phishing trends as well as take the necessary steps to secure systems and fix vulnerabilities.  The Federal Trade Commission provides updated online information about securing operations against data breaches, and a new business-focused Data Breach Response Guide.

If you own a business that has been a victim of a data security breach, authorities offer three important steps to take:  notify law enforcement, notify other businesses affected (such as banks, credit issuers and major credit bureaus), and notify individuals.  If Social Security numbers have been compromised, individuals should be alerted to take steps to avoid being a tax-related identity theft victim.

The most popular way to steal from individual taxpayers uses simple data including names, phone numbers, email addresses and home addresses stolen from businesses.  With this basic information, scammers send out emails and make threatening phone calls claiming to be IRS representatives, banks or credit card companies demanding payments on overdue taxes, overdrawn accounts or bills.  They even using text messages contacting innocent victims who are tricked into sharing even more private information.  Criminals will use the IRS logo and language in letters, emails or phone calls that seem legitimate.

Specifically, tax-related identity theft uses a stolen Social Security number to file a fraudulent tax return claiming a refund.  This particular type of scam is being reduced dramatically as new, more-secure information transfers between the IRS and banks track automatic taxpayer refund deposits and checks.

Businesses should also remember that their business identity may also be stolen.  A new type of business tax identity-theft is on the rise.  Cybercriminals are using stolen business information to file fraudulent Forms 1120 – U.S. Corporate Income Tax Returns to capture corporate income tax refunds.  They often obtain this private business information through the business’s website and by hacking into documents stored on unsecured computers.

Taxpayers, businesses and tax professionals should remain alert and ask more questions before sharing information.  If you have questions about tax-related identity theft as an individual or business, please contact one of our tax preparation specialists at McRuer CPAs


College Students Reap Rewards of Tax Credit

College costs tax credits piggy bankNearly 10 million taxpayers have claimed the American Opportunity Tax Credit saving an average of $2,277 per family according to new IRS statistics.  To claim this popular tax credit, the taxpayer, their spouse or their dependent must have been a student who was enrolled at least half time for one academic period. The credit is available for four years of post-secondary education and can be worth up to $2,500 per eligible student.

AOTC is a tax credit that helps pay a taxpayer back for qualified education expenses for the first four years of higher education.  While $2,500 may seem like a drop in the bucket when considering the high price of a college education, taxpayers with college expenses find this tax credit is a big help.  Also, another bonus that is unusual for tax credits, if the credit brings the amount of overall income taxes owed to zero, 40% (up to $1,000) of any remaining amount of the credit may be refunded to the taxpayer.

Families with multiple qualifying students have the right to claim up to the full AOTC tax credit amount for each student.  Newly released data show roughly 775,000 taxpayers had two children that qualified for the credit in their household, and more than 60,000 families who qualified for the tax credit had three children in college.

Students and families who want to apply, are required to have a Form 1098-T Tuition Statement from the school they attend. Then the taxpayer would fill out a Form 8863 to request the education credit and file it with their tax return.

An qualifying academic period can be a semester, quarter, trimester or summer school session which is determined by the school.  For higher education schools that do not use clock or credit hours nor academic terms, the student’s required payment period may be treated as an academic period.

Warning: make certain when you claim this tax credit that you are qualified as well as understand the guidelines and the need for accuracy.  Keep copies of your documentation.  If you are audited and the IRS finds that the AOTC claim is incorrect or you don’t have proper documentation, you may have to pay back not only the amount of the tax credit you received, but also interest and a possible fraud penalty. You may also be banned from claiming the credit again for two to ten years.

To be eligible for AOTC, the student must:

  • be pursuing a degree or another recognized education credential,
  • be enrolled at least half time for at least one academic period beginning in the tax year,
  • not have finished the first four years of higher education at the beginning of the tax year,
  • not have claimed the AOTC (or the former Hope credit) for more than four tax years, and
  • not have a felony drug conviction at the end of the tax year (this was added as part of the national effort to cut drug abuse).

There are income limits based on a taxpayer’s modified adjusted gross income (MAGI) which must be no more than $80,000 (or $160,000 for married filing jointly).  You cannot claim the credit if your MAGI is over $90,000 (or $180,000 for joint filers).

Many students complete their higher education with degrees that cost tens of thousands of dollars and have major student loan debt. This kind of tax credit is bringing some relief to millions of Americans as they seek more ways to finance their or their dependent’s college education.

If you have any questions or need more information about the AOTC, please contact one of our tax preparation specialists at McRuer CPAs online or by calling 816.7431.7882.


Tax Refund Roundup

When we file our tax return and expect a tax refund, it may seem like forever before we receive the refund check or deposit.  There are ways to track the progress of your tax refund as well as receive some updated general information about how refund payments are handled.

The IRS says it processes about nine out of 10 refunds in less than three weeks.  Processing a refund check doesn’t guarantee the check will be in a taxpayer’s hands in three weeks, but does say that, generally, it takes three weeks to receive a tax return, process it and confirm a refund check.  The check should then be mailed or auto-deposited in a taxpayer’s designated account.  The simpler the tax return, the faster the processing time.

Any taxpayer may use the fast “Where’s My Refund?” online tool to monitor a refund’s status.  E-Filers may use this tool within 24 hours of filing their return.  Paper filers must wait 4 weeks after mailing their tax return before this tool will begin showing their refund status.  There is also a mobile app taxpayers may use called IRS2Go, available in both English and Spanish.

Celebrate Tax Refund Experience shows several factors may slow down the processing of any tax return and refund check.  More complicated returns containing several pages of documents such as deduction and tax credit forms, and several Forms 1099 take longer to review and confirm.  Something as simple as failing to sign the tax return will cause delay as the IRS must contact the taxpayer by mail to request any updates, changes or information before a refund check may be issued.

You may be surprised at how many refunds are delayed by simple taxpayer mistakes like a missing signature, incorrect Social Security number, or a simple math error – especially on self-prepared tax returns.  These kinds of errors are significantly reduced when professional tax preparers are used to prepare and file even simple returns.

Sometimes taxpayers are victims of identity theft, but don’t realize it until they submit their tax return and the IRS informs them someone else has already used their Social Security number to request a refund.  The IRS will contact the legitimate taxpayer by mail about the suspected fraudulent tax return.  A taxpayer must then go through what may be several months of investigation and paperwork to verify their identity and Social Security number before receiving their refund.

Electronic receiving a refund through direct deposit is the easiest, fastest and safest way to receive a tax refund.  Each year more taxpayers choose direct deposit.  In the 2016 tax year, 8 out of 10 taxpayers requested their refunds be deposited this way.  Taxpayers may also request their refund check be split and auto-deposited in up to three different bank accounts.

If you need more information or would like to discuss your options for receiving your tax refund, please contact us online or call us at McRuer CPAs at 816.741.7882.

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